The Federal Housing Finance Agency (FHFA) has announced that the 2021 conforming loan limits for government-sponsored enterprises Fannie Mae and Freddie Mac will increase to $548,250 in most areas of the country.
The loan limit will increase from $510,400 in 2020, marking the fifth consecutive year that conforming loan limits for one-unit properties have been raised. Prior to that, conforming loan limits were unchanged from 2006 to 2016. Since 2016, the loan limit has risen by $131,250.
Conforming loan limits have increased because the Housing and Economic Recovery Act (HERA) mandates that the baseline limit be adjusted every year to reflect changes in the average U.S. home price. FHFA’s third-quarter 2020 home-price index estimated that home prices grew by a seasonally adjusted 7.42% over the past four quarters, so the agency increased next year’s conforming loan limit next by the same percentage.
Some parts of the country will have a different loan limit. These are mainly high-cost areas where 115% of the local median home value exceeds the baseline loan limit. HERA establishes the loan ceiling in these areas as a multiple of the local median home value and caps the ceiling at 150% of the baseline loan limit. Since median home values generally grew in high-cost areas in 2020, the maximum loan limit in these locations was driven above the 150% threshold. This means that the new conforming loan limit for one-unit properties in most high-cost areas will be $822,375 (150% of $548,250).
Additionally, special provisions set different loan-limit calculations for Alaska, Hawaii, Guam and the U.S. Virgin Islands. The baseline loan limit for one-unit properties in these areas also will increase to $822,375.
As a result of rising home values, as well as the changes in both the baseline loan limit and the high-cost ceiling, the 2021 conforming loan limit will be higher in all but 18 counties (or county equivalents) in the U.S. For a list of 2021 conforming loan limits for all counties and county-equivalent areas, click here.
Industry stakeholders applauded the FHFA for raising the loan limits to keep up with rising prices.
“With home prices setting records in many U.S. markets, the National Association of Realtors is pleased to see the FHFA raise its national conforming loan limits for 2021,” said Charlie Oppler, president of the National Association of Realtors (NAR).
“With an assurance that loan limits will align with home price growth, this decision will help ensure homeownership remains within reach for countless American families. As we await final 2021 figures from the FHA, NAR urges federal policymakers to continue prioritizing market stability and access to safe, affordable financing for all U.S. consumers.”