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The Federal Housing Finance Agency announced recently the mortgage limit that will apply to conforming conventional and VA loans in 2021. We’ll cut to the chase and tell you that they’re increasing. The limit for 2021 is $548,250 for a 1-unit property, an increase of more than 7.4% compared to last year.

The rest of this post will go over what this means if you’re in the market for a mortgage, whether it’s a purchase or refinance.

The Change for 2021!

The $548,250 conforming loan limit applies to single-family homes located in the lower 48 states. In Alaska and Hawaii, the limit is $822,375. The limits for 1-unit properties in high-cost counties will have their own loan limits set on a local basis, which could be up to $822,375.

You’ll also have a higher conforming loan limit for multifamily properties between 2 and 4 units.

  • 2 units: $702,000
  • 3 units: $848,500
  • 4 units: $1,054,500

The VA also follows these guidelines when setting limits for their loans. For the VA, these changes are effective for loans closing after January 1, 2021.

These limits don’t apply to FHA loans. In contrast to the nationwide limits for conventional and VA loans, FHA sets limits on a county-by-county basis. FHA loan limits will be set at a later date and applied to loans made after the new year.

Increased conforming loan limits put more power into the consumer’s hands. It allows individuals who already own a home to take more cash out of their home’s equity. It also allows buyers to borrow a higher loan amount and in return bring less down, in some cases as little as 3% down. While that’s not an insignificant amount, it doesn’t have to be your life savings and you can reach your homeownership goal that much faster. With a VA loan, there’s no down payment required.

Conforming Vs. Jumbo Loans

If you need a mortgage that goes beyond conforming limits, you’ll need a jumbo loan. Because of the bigger loan amount, you’re going to have to meet some additional requirements to mitigate the increased risk taken on by the lender or investor in the mortgage.

This deals with a purchase and refinance side of the mortgage transaction.  For many homeowners who have been waiting to refinance, due to the conforming versus jumbo issue, now have the opportunity to do so with the new limits.  New limits offer homeowners a unique opportunity on the refinance side.  That, culminated with historically low interest rates, means the time may be now!

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