Published January 26, 2021

Conforming Loan Limit Increasing In 2021!

Written by Shanna Day Team

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For the fifth year in a row, conforming loan limits are going up in 2021. Most parts of the country will soon be able to take advantage of the new conforming loans limit of $548,250 for one-unit properties, a $37,850 jump from the $510,400 limit in 2020.

Limits on conforming loans increase in line with the Housing and Economic Recovery Act (HERA) requiring annual adjustments to Fannie Mae and Freddie Mac's loan limits to reflect housing price changes. The 2021 new loan limits came about from a year over year average increase of 7.42% based on the third quarter FHFA House Price Index.

So what does this mean for you, the homebuyer? Basically, your loan is classified by your lender when you apply for a mortgage as either a "conforming loan" or a "jumbo loan." Aside from considerable differences in loan approval requirements and interest rates, a conforming loan is within loan limits set by Fannie Mae and Freddie Mac. These government-sponsored entities (GSEs) buy mortgages in the secondary market and they are guaranteed to buy conforming loans but not jumbo loans. This results in banks preferring to work with loans below Fannie and Freddie's limits, since they know there's a buyer for these loans if they opt to sell.

The impact of the new loan limits will be felt mostly by buyers purchasing homes between $550,000 and $700,000, since it allow homebuyers to increase their purchase price with the possibility to get a bigger loan without jumping to a jumbo loan.

Most homebuyers might not be affected but keep in mind that substantial increases to these limits reflect the trend of increasing home prices through the years, which should prompt questions on home affordability especially if you're looking to buy a home in the near future.

Now don't just wing it when you finally embark on your home search... Get your local real estate specialists, The Shanna Day Team, to help you find your dream home while interest rates are low and loan limits are on the rise!

Source Article:

The Motley Fool