On November 24, the Federal Housing Finance Agency (FHFA) announced the new maximum conforming loan limits for mortgages that can be acquired by Fannie Mae and Freddie Mac starting on January 1, 2021. Per the Housing and Economic Recovery Act (HERA) the conforming loan limits are adjusted every year based on prevailing market conditions.

The 2021 maximum conforming loan limit (CLL) for single-family properties will increase from $510,400 up to $548,250.

Why the Increase?

Home values have been steadily increasing throughout 2020 despite the other negative economic impacts of coronavirus. Buyer demand has remained very high while seller inventory is low and mortgage rates have been at historic lows. This has kept the real estate market very hot throughout most of the country, especially here in San Diego. According to the 2020 FHFA House Price Index, home prices have increased an average of 7.42 percent between the third quarters of 2019 and 2020. This is what drives the baseline maximum CLL up by the same percentage heading into 2021.

It’s important to note that San Diego (and most of California for that matter) is an area where the home values are much higher than the national average. Markets like this surpass the threshold of 115% of the median American home value. Therefore, we have a higher maximum conforming loan limit. The new 2021 CLL in most higher-value markets like San Diego will be $753,250.

As you can see, not all regions are affected the same, and a few places won’t see increases in maximum conforming loan limits next year. However, this is only the case in 18 counties or county equivalents across the entire United States. Everywhere else will see the CLLs go up to reflect rising home prices and other economic recovery factors as we near vaccine distribution.

Larger Traditional Loan Values

What this mean for home buyers in 2021 and beyond is that they will be able to apply for larger traditional mortgage loans that are still backed by Fannie Mae or Freddie Mac. With the low interest rates, it gives many borrowers more buying power because conforming loan qualifications are less stringent than loans that exceed the CLL for that area (i.e., “jumbo loans”). Of course, you still do have to qualify for a mortgage loan and show that you are a good loan candidate.

Being Prepared for Your Mortgage Loan

If you are thinking about buying a home in 2021, the more prepared you can be the better. It’s a great idea to get pre-approved for your mortgage loan before you even start your home search. This will let you know how much you can afford and also make your purchase offers much more attractive.

To get started on your mortgage pre-approval or to ask any questions about the home loan process, contact Transparent Mortgage today at (858) 761-7795.