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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.

How Are Mortgage Limits Changing In 2021?

The $548,250 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

When Do These Limits Apply To Your Mortgage?

The FHFA sets the limits for conforming conventional loans purchased by the government-sponsored entities Fannie Mae and Freddie Mac. For conventional loans from Quicken Loans®, we’re able to offer these new loan limits starting today.

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.

Quicken Loans requires most people who get a jumbo mortgage to bring at least 20% for a down payment. VA jumbo loans have no down payment requirement. However, as with all VA loans, you have to be an eligible active-duty service member, veteran or the surviving spouse of someone who passed in the line of duty or as a result of a service-related disability. In order to make no down payment on a VA jumbo loan, you also need a 740 median FICO® Score.

In addition to a higher down payment, you’ll need more reserves. Reserves are funds set aside, typically in a savings account, that are not used in the mortgage transaction. The amount is normally measured as a certain number of mortgage payments including principal, interest, property taxes, homeowners insurance and homeowners association dues, if applicable.

While it can vary depending on who is invested in your loan, a good guideline for homeowners looking to get a conforming loan is 2 months’ worth of reserves. However, if you’re getting a jumbo loan, you could be required to have anywhere between 6 – 18 months’ of reserve payments depending on the loan amount, whether you’re a first-time home buyer, and the size of your down payment. In many cases, jumbo loans will require more reserve funds than conforming loans.

Finally, jumbo loans often require additional documentation.

These guidelines apply to jumbo loans issued by Quicken Loans. Other lenders may have different policies.

These conforming loan limits are important because they generally are easier to qualify for than higher-limit jumbo loan amounts. Because of this, the limits have a real impact on your buying power.

To take advantage of these limits today, go ahead and apply for a mortgage! You can also give one of our Home Loan Experts a call at (800) 785-4788. If you have any questions, you can leave them for us in the comments section below.

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