Rising home values in 2020 mostly help homeowners and sellers, but a side benefit for buyers and sellers who have yet to refinance is that those higher prices push up loan limits.

Limits for conforming loans acquired by Fannie Mae and Freddie Mac, which are reset annually, will increase in 2021. FHA loan limits, which have yet to be announced, will also probably rise because of higher prices. Loan caps were eliminated for VA loans as of Jan. 1, 2020.

The Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae, announced that conforming loan limits for one-unit properties will rise to $548,250 for 2021 in most counties across the United States, up from $510,400 in 2020. That means that borrowers who need to finance houses above the loan limit for their area will need to apply for a jumbo loan, which generally has tighter loan approval guidelines and requires a larger down payment.

The limits are set according to home price increases. The FHFA’s House Price Index showed that home prices increased an average of 7.42 percent between the third quarters of 2019 and 2020. That means the baseline conforming loan limit will increase by that same amount.

FHA loan limits, which are set at 65 percent of the national conforming loan limit, will rise on Jan. 1 from $331,760 to $356,362 in most housing markets.

High-cost housing markets

Conforming loan limits are higher in expensive housing markets, with the maximum loan limit set as a multiple of the area median home value. FHFA sets a “ceiling” on the limit of 150 percent of the loan limit in most housing markets. Since median home values increased in most high-cost areas in 2020, the maximum loan limit for a one-unit property in most high-cost markets, including the Washington region, will be $822,375 or 150 percent of $548,250.

According to FHFA, the maximum loan limit will be higher in 2021 in all but 18 counties in the United States.

The loan caps apply to new loans that will close in 2021.

To check loan limits by county, click here.

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