Despite the Coronavirus (COVID-19) pandemic, home values continue to increase throughout the country. In addition to being a seller's market, an incidental benefit of increasing home values is that the loan limits for conforming mortgages also increase. This is extremely beneficial for those homeowners who have not refinanced their mortgage.
Conforming Mortgages Explained
A conforming mortgage is a loan that meets or exceeds the lending guidelines established by Fannie Mae and Freddie Mac. These agencies are government-sponsored entities that are the major drivers of the mortgage loan market. Lenders prefer to use conforming loans because Fannie Mae and Freddie Mac will guarantee them and purchase them in the secondary market.
One of the guidelines set by Fannie and Freddie Mac are mortgage loan limits for conforming mortgages. This loan limit changes annually.
2021 Conforming Loan Limits
The limits are set based on how home prices increase. The Federal Housing Finance Agency (FHFA), Freddie Mac and Fannie Mae's oversight agency, revealed that the limit in 2021 is $548,250. If a borrower needs financing above the loan limit for their area, the borrower will have to look into jumbo loan financing. In general, jumbo loans require bigger down payments and have stricter guidelines for loan approval.
While FHA loans are not conforming loans, their loan limits are implemented at 65 percent of the national conforming loan limit. In 2021, the limit will be $356,362 in the majority of housing markets.
These new loan caps and limits apply to any new loan that closes in 2021.
Loan Limits in Higher Priced Housing Markets
The conforming loan limits are higher in pricier housing markets. The maximum loan limit is set as a multiple of the area median home value.
According to the FHFA, the "ceiling' is 150 percent of the loan limit in the majority of housing markets.
By 2021, pricier markets across the country (e.g., Hawaii, Alaska, etc.) have loan limits, which could go up to $1,054,500 for a 4-unit home. However, the highest loan amount for a one-unit property in the majority of high-cost markets is $822,375 or 150 percent of $548,250 for 2021. According to FHFA, in 2021, the maximum loan limit is higher across the country, except for 18 counties.
You can review the FHFA's website to determine the loan limits for your city.
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