National conforming loan limits are evaluated and adjusted annually as required by HERA (Housing and Economic Recovery Act) based on the average U.S. home price. Doing so keeps the cogs moving in the Real Estate market as it allows buyers to qualify for higher loan amounts based on increasing home prices. This year’s Federal Housing Finance Agency’s limit, which oversees all conventional loans like Fannie Mae and Freddie Mac, was raised by 7.42% to $548,250. Last year the limit was $510,400.
The Department of Housing and Urban Development (HUD) takes that limit of $548,250 and sets the FHA loan floor for the lost cost areas and a ceiling for the high-cost areas. The 2021 national conforming loan limit for Fannie Mae and Freddie Mac will be increasing by to a floor of $356,362, which is 65% of the FHFA’s limit of $548,250, and the ceiling to $822,375; 150% of the FHFA’s limit.
What does this mean for buyers?
Prices have steadily increased in 2020 every month in Massachusetts, but this is a national phenomenon due to the frenzied market. Inventory hasn’t been able to keep up with buyer demand and prices are increasing at a more than normal rate due to frequent bidding wars. This increase in limits makes it easier for borrowers to get more house with lower down payments and monthly payments. The historically low-interest rates are also a huge help for buyers right now, as all the additional capital makes it more feasible to offer more to a seller in the event of a multiple offer situation. Buyers be advised though, that once these new limits go into effect on the 1st of January 2021, that your preapprovals may need to be updated by your lender.