Over the past year, home prices across the country have continued to rise, undeterred by a global pandemic and resulting recession. According to the CoreLogic Home Price Index, national home prices increased by 5.5 percent between July 2019 and July 2020, the fastest acceleration the country has seen in nearly two years. To keep pace with these changes, the Federal Housing Finance Agency (FHFA) has raised the conventional conforming loan limits for 2021, as it does every year to adjust for inflation and price increases. Read on to understand how these changes could impact you.
What Are Conforming Loan Limits?
Conforming loan limits are the maximum amount a person can borrow with a conventional mortgage, as determined by the FHFA. These limits are part of the guidelines set by the Federal National Mortgage Association to protect lenders and borrowers from risky mortgage loans.
If a home is priced above the conforming loan limit in your area, you would either have to make up the difference in cash or apply for a jumbo loan in order to purchase it. Jumbo mortgage loans tend to have stricter credit and income requirements because they cannot be purchased by Fannie Mae or Freddie Mac and are therefore considered riskier for lenders. In order to offset that risk, jumbo loan applicants may need to make larger down payments or agree to higher interest rates.
What Are the New Conventional Conforming Loan Limits for 2021?
For single-unit properties in most counties across the country, the new conventional conforming loan limit is $548,250, which is 7.42 percent higher than the 2020 limit of $510,400.
In high-cost markets—meaning areas where median home values are more than 115 percent of the conforming loan limits—the 2021 limit is $822,375 (up from $765,000 in 2020).
To determine what the conforming loan limits are in your county, check the map on the Federal Housing Finance Agency website.
What Do These Changes Mean for Prospective Homebuyers?
If you’re planning on purchasing a home priced below half a million dollars, conforming loan limits have no impact on your life. However, if you have your eye on a property above the previous limit, you will now be able to purchase the home with a conventional mortgage, as opposed to a jumbo mortgage.
This is great news for anyone who wants to purchase a highly-priced home but doesn’t want to jump through the extra hoops required to secure a jumbo mortgage. A conventional mortgage will almost certainly come with a lower interest rate and require smaller down payments than a jumbo mortgage because conventional mortgages are considered less risky investments by lenders. With these new limits in place, it could be easier than ever to secure the home of your dreams.
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