Another sign that real estate continues to grow is that the Federal Housing Finance Agency increased the 2021 conforming loan limits by over $37,000. Actually, this makes the 5th straight annual increase.
Conforming loan limits apply to conventional mortgages underwritten by Fannie Mae or Freddie Mac guidelines. Each year FHFA considers adjusting limits to reflect the average home prices across the country. Plus, the loan limits vary based on each county. Some higher costs county limits vastly exceed this new limit. Conforming loans in these counties are called high balance loans. Also increasing are the limits for high balance loans and conforming loans for two to four-unit residential homes.
2021 Conforming Loan Limits Explained
Most mortgage loan types have a ceiling or limit. When the conforming limit increases, FHA does as well. However, conventional and FHA loan limits are not the same. Fannie Mae and Freddie Mac conforming loan limits are higher than FHA limits. So when looking to purchase a primary residence, one of the key comparisons would be allowed loan size. The new conforming loan limit for single-family homes is $548,250.
- FHA loan limits
- VA loan limits – New rule allows unlimited no money down.
- USDA loans have no limit
Conforming loans are super flexible solutions and may be used to purchase, build, or refinance a primary residence, second home, or investment property. By increasing this limit, it allows more borrowers to take advantage of many Fannie and Freddie benefits.
| Units | 2020 Conforming Loan Limits | 2020 High Balance Conforming Limits | 2021 Conforming Loan Limits | 2021 High Balance Conforming Limits |
| 1 | $510,400 | $765,600 | $548,250 | $822,375 |
| 2 | $653,550 | $980,325 | $702,000 | $1,053,000 |
| 3 | $789,950 | $1,184,925 | $848,500 | $1,272,750 |
| 4 | $981,700 | $1,472,550 | $1,054,500 | $1,581,750 |
How Will 2021 Conforming Loan Limits Impact VA Loans?
In the past, VA loans have mirrored conventional loan limits. In January 2020, the reins were removed for VA eligible borrowers with full entitlement. That’s right! Now, service members, Veterans, and qualified surviving spouses are able to purchase a home with no money down up to any amount.
Although, conforming loan limits do apply to VA loans when using bonus entitlement. Bonus entitlement involves having two VA loans at once or using VA when the entitlement is tied up from a previous VA foreclosure or short sale.
What Does the Increased Loan Limit Mean?
Besides being able to borrow more, the primary benefit of the increase is that more are able to use Fannie Mae and Freddie Mac program advantages. This is especially true in larger cities where housing prices are higher. Higher prices hurt affordability for all buyers and is definitely a hurdle for first time home buyers. Therefore, raising loan limits allows more borrowers to use conforming loan benefits like these below:
- 3% down payment purchase
- Reduced mortgage insurance & PMI options
- 10% down payment second home purchase
- Rental property financing up to 85%
- PMI cancellation
- Student loan guidelines make it easier to qualify
- Waiving escrows for taxes and insurance
- Renovation loans
- Building new construction
- Co-signers allowed
Choosing a Conforming Loan
As shown in the list above, conforming loans are not limited to 20% down payment and very traditional guidelines. Not only do Fannie and Freddie’s loan options solve the down payment hurdle, they additionally help overcome many of today’s buyer issues. Additionally, staying within the conforming loan limits allows other potential benefits to borrowers such as appraisal waiver and income solutions such as using only one year of tax returns for self-employed borrowers.
How do you know which loan type to choose? Easy! Contact a loan officer now.
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