The Federal Housing Finance Agency (FHFA) is raising the baseline conforming loan limit for 2021, and we’re here to help you understand what this means. Laws restrict Fannie Mae and Freddie Mac to purchasing single-family mortgages with origination balances that are below a certain amount — this amount is known as the “conforming loan limit.”
The conforming loan limit is increasing nationwide effective January 1, 2021. Loans locked in December 2020 but closing in 2021 are also eligible for these new limits. Read on for the reason behind this limit change, what these limits are in the Colorado counties we serve, and what the increase means for homebuyers.
Why has the limit been raised?
The limit increase is a response to significant gains in home values that occurred during 2020. According to FHFA’s seasonally adjusted, expanded-data HPI, house prices increased 7.42%, on average, between the third quarters of 2019 and 2020.** As home prices rise, the maximum loan limit needs to rise so homebuyers can borrow enough to cover the cost of their new home purchase. Raising the conforming loan limits for mortgages purchased by Fannie Mae and Freddie Mac reflects the continuing recovery of the U.S. housing market. In most counties across the country, the 2021 maximum conforming loan limit for a single-family home is $548,250. That’s an increase of $37,850 from the 2020 baseline limit of $510,400.
What does this mean in high-cost areas?
High-cost areas are counties in which 115% of the local median home value exceeds the baseline conforming loan limit. In Colorado, that includes Boulder, Denver, Broomfield, Jefferson, Arapahoe, Douglas and Adams counties. In these areas, the loan limit is established as a multiple of the area median home value, while a “ceiling” of that limit is set at 150% of the baseline loan limit. Read on to see the limits in the Colorado counties we serve.
What does this mean for borrowers?
Higher conforming loan limits are an “added value” to the homebuyer. It allows you to purchase a higher-priced home but keep your loan amount in a conforming loan limit that provides greater flexibility with underwriting guidelines and programs.
Below you’ll find a snapshot for the high balance conforming limit for one-unit properties in select counties.
What the new limits are in the Colorado counties we serve:
|Conforming New Limit||One-Unit Property|
|All Counties (includes Larimer & Weld County)||$510,400|
|Conforming – High Balance Limit||One-Unit Property|
|Denver, Broomfield, Jefferson, Arapahoe, Douglas, & Adams County||$596,850|
Loans locked in December 2020 are still eligible for these new limits when closed in 2021. I
If you’re looking to better understand loan limits as part of the homebuying process and want to find out more, please contact our mortgage team. We are here to help. You may also check our mortgage resources or attend a complimentary mortgage seminar.
**According to FHFA’s seasonally adjusted, expanded-data HPI.