Thanks to another year of stellar home price appreciation, the 2021 conforming loan limit will increase to $548,250, per the Federal Housing Finance Agency (FHFA).
This is the maximum loan amount for mortgages that can be acquired by Fannie Mae or Freddie Mac, known as conforming mortgages.
The figure is up from $510,400 for mortgages closed in 2020, and represents the 7.42% rise in home prices over the past four quarters.
The FHFA determines the conforming loan limit each year by looking at the FHFA House Price Index (FHFA HPI) report.
The seasonally adjusted, expanded-data FHFA HPI rose 7.42%, on average, between the third quarters of 2019 and 2020.
That pushed the baseline maximum conforming loan limit up by the same amount, from $510,400 to $548,250, which becomes effective on January 1st, 2021.
Individual banks and mortgage lenders may accept the new, higher loan limits almost immediately as it takes a month or longer for a mortgage to actually fund.
While there were certainly times where it looked like the conforming loan limit could have remained at its 2020 level, thanks to the COVID-19 pandemic, real estate took off after a brief slowdown in spring.
Fun fact – conforming loan limits do not decrease, even if home values have declined. Instead, loan limits remain the same as the prior year, not that this has been an issue for nearly a decade.
In summary, this is more good news for existing homeowners wanting to refi and those looking to purchase a home, as conforming mortgages are generally easier to get approved for, and tend to come with lower mortgage rates.
While $548,250 will be the maximum baseline CLL for a one-unit property, it’ll be even higher for those financing a multi-unit property, such as a duplex, triplex, or fourplex.
In fact, those taking out a mortgage on a fourplex will now be able to stay at/below the CLL while still getting a $1 million+ loan amount, which tells you just how expensive homes have become.
There are even higher loan limits in place for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the baseline loan limit will be $822,375 for one-unit properties in 2021. That’s 50% higher than the baseline.
And for those financing multi-unit properties in those states and territories, the loan limits exceed $1.5 million.
If you reside in Alaska, Hawaii, Guam, or the U.S. Virgin Islands, the baseline loan limit for is 150 percent of the national baseline.
This means it’s possible to get a loan amount as high as $822,375 on a one-unit property and have it still be considered conforming.
This is important for those unable to obtain jumbo home loan financing, or those looking for the lowest possible mortgage rate.
As noted, mortgage rates are typically lower on conforming mortgages because loans backed by Fannie Mae and Freddie Mac are more liquid on the secondary market, especially with the Fed as a buyer of agency mortgage-backed securities (MBS).
But wait, there’s more. What about conforming loan limits in high-cost regions of the country, such as New York City and San Francisco?
Well, those also enjoy higher loan limits, assuming 115 percent of the local median home value exceeds the baseline CLL.
In these expensive regions of the country, the maximum loan limit will be a multiple of the area median home value, with a “ceiling” of 150 percent of the baseline loan limit.
There are more than 3,000 counties or county-equivalent jurisdictions in the United States, and about 150 to 200 of them qualify for these high-cost limits that exceed the baseline limit.
This means the new ceiling loan limit for one-unit properties in many high-cost areas will be $822,375, which is 150 percent of the baseline $548,250.
For example, homeowners with a one-unit property will be able to refinance a $822,375 mortgage in San Francisco, or take out a home purchase loan in New York City for the same amount, with backing by Fannie or Freddie.
However, so-called conforming jumbo loans tend to come with slightly higher mortgage rates than pure conforming loan amounts.
The FHFA said the maximum CLL will be higher in all but 18 counties or county equivalents nationwide in 2021 thanks to rising property values.
Lastly, let’s discuss the 2021 FHA loan limits, which are related to the national conforming loan limit but not the same.
The maximum FHA loan limit can actually be quite a bit lower in many low-cost regions of the United States because they calculate the “floor” at 65 percent of the national conforming limit.
In other words, if you’re buying a home or refinancing a home loan in a less expensive area, it may be as low as $356,362, which is still up from $331,760 in 2020.
I believe Phoenix, Arizona has a FHA loan limit set at the floor.
Meanwhile, the ceiling is the same 150 percent of the national conforming limit enjoyed in high cost regions, so up to $822,375 for a one-unit property in places like Los Angeles.
And even higher for multi-unit properties in those regions.
The new FHA loan limit goes into effect for case numbers assigned on or after January 1st, 2021.