What the 2021 Increase in Loan Limits Means for Homebuyers

The idea of owning a home is exciting, especially if it’s your first one! However, that excitement can start to fade, as many home buyers are being challenged with mortgage loan limits. 

The Federal Housing Finance Agency (FHFA) has introduced new loan limits for 2021, which reflect the average increase in house price index data. In this article, we’ll take a closer look at what these new loan limits look like, and how they can affect your purchasing decisions.

To start off, here’s a refresher on what an FHA loan is. In a nutshell, the FHA insures mortgages by providing money to the government, which then backs the lenders. Many people choose to take this loan if they’re a lower income family or have a poor credit score. It’s appealing because the down payments and interest rates are lower. However, you can only borrow within the limits set by the FHA for the year you plan on purchasing a home. And unfortunately, this can vary by location. The FHA loan limits purchasing a four-unit property, so you’d still need to qualify for a conventional mortgage. 

Home prices across the country are rising, which means loan limits will increase as well. While this is an upward trend in the economy, high real estate values means that home buyers need to borrow more money for their mortgages. And for those with low credit scores or funds, it could mean being locked in a down payment. These loan limits change every year under law, and the goal is to make mortgages accessible to everyone.

To start, the increase might move you to a location you didn’t expect. This is because areas with lower home prices will also have lower loan limits, which could save you money. The increase could also delay the buying process if the loan can potentially buy you a better property. If your area’s loan limit has changed and you don’t want to relocate, a jumbo loan might be your best bet. This way, you can borrow above the loan limit. But be cautious, as the qualifications to meet the conforming loan are more tedious. Another way loan limits affect borrowers is the timing of a purchase, since the FHA announcement doesn’t happen until the end of the year and prices are released the following year.

When it comes to mortgages, consulting with a professional lender is the smartest move you can make. Purchasing a home is no easy decision, and a lender will help guide you in the right direction.

If you live in Maryland and you’re looking for some guidance in the mortgage process, Ken Venick would love to help! With over 30 years of experience, he can set you up for success, and put you in the right position to purchase your dream home. Contact us today!

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