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Conforming Loan Limits In 2021

Molly Grace5-minute read

November 02, 2021


When you get a mortgage, there’s a limit to how much you can borrow. On an individual level, this will be determined by how creditworthy you are and how much you can afford to spend each month.

At the industry level, lenders are also limited by how much they can lend to borrowers if they want their loans to conform to the standards set forth by the Federal Housing Finance Agency (FHFA). Conventional loans that meet these standards are called conforming loans.

Each year, the FHFA updates the dollar limit on what it considers to be conforming loans. To learn what the conforming loan limits are for 2021, read on.

What Is The Conforming Loan Limit?

The FHFA sets conforming loan limits for Fannie Mae and Freddie Mac, the two government-sponsored enterprises that it regulates.

Fannie Mae and Freddie Mac purchase mortgages that meet their standards from lenders and then repackage them into mortgage-backed securities for investors. This process gives lenders the liquidity needed to continue providing borrowers with affordable mortgage loans.

Both Fannie Mae and Freddie Mac have additional criteria for the loans they purchase, including minimum credit scores, minimum down payments and maximum debt-to-income ratios (DTI). But in general, when people talk about conforming loan standards, they’re talking about loan limits.

So, what exactly are these limits?

The baseline conforming loan limit for 2021 is $548,250 – up from $510,400 in 2020. The limit is higher in areas where the median house cost exceeds this number, so borrowers in high-cost areas can get conforming loans of up to $822,375, depending on the limit in their individual county.

If you need a home loan that exceeds the conforming loan limit for your county, you’ll have to get a jumbo loan, which allows higher loan limits. However, these loans are typically harder to qualify for, requiring higher credit scores and larger down payments.

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How The Conforming Loan Limits Work In 2021

Conforming loan limits are tied to home prices. Each year, the FHFA updates its baseline loan limit based on its House Price Index (HPI) report, which tracks the average increase in home values over the previous year.

Between 2019 and 2020, home values rose an average of 7.42%, according to the FHFA HPI, which means that the conforming loan limit also rose 7.42% from 2020 – 2021.

Conforming loans are great for consumers because they typically come with lower interest rates than other, non-conforming loan types.

If you’re trying to purchase a home whose sale price exceeds the conforming loan limit for your area, increasing your down payment so that you stay within the limit can be one way to be able to enjoy the benefits of a conforming loan without having to take out a jumbo loan.

Conforming Loan Limits In High-Cost Areas

Home prices differ quite a bit from state to state, and even from county to county. This makes having a single conforming loan limit for the entire country difficult – after all, it’s hard to compare home prices in, say, rural Ohio to home prices in Manhattan, one of the most expensive real estate markets in the country.

This is why the FHFA has a higher limit for areas it deems to be “high-cost,” a designation based on an area’s median home values compared to the baseline conforming loan limit.

The exact conforming loan limit varies depending on the median home value in a given area, up to 150% of the baseline conforming loan limit. In 2021, this limit is $822,375. To see what the limit is in your county, use the FHFA’s interactive map.

An Example Of High-Cost Area Limits

To see what this might look like in practice, let’s say you’re considering buying a $700,000 house in California.

If you were to buy that house in San Bernardino County, which isn’t an FHFA high-cost area, you’d likely need to take out a jumbo loan, since you’d be exceeding the $548,250 baseline loan limit.

However, say you’re buying a $700,000 house in San Diego County, where the conforming loan limit is $753,250. Since you’re within the limit for that county, you’d be able to get a regular, conforming loan.

You’d also be able to get a conforming loan for this property in Los Angeles County, where the conforming loan limit is at the loan limit ceiling of $822,375.

In addition to having higher limits for high-cost areas within the contiguous U.S., the FHFA has also set the baseline conforming loan limit for Alaska, Hawaii, Guam and the U.S. Virgin Islands at $822,375 for 2021.

What To Consider Before You Borrow More Than The Conforming Loan Limit

If you’re considering purchasing a home outside of the conforming loan limits, be sure you understand whether you can afford a nonconforming loan and what this type of loan would mean for your finances – after all, the larger the loan, the higher the monthly payment.

This is especially important to consider in high-cost areas. Even with higher loan limits, much of the local inventory could still exceed the high-cost loan ceiling.

In San Francisco, for example, the maximum conforming loan limit is $822,375, but the median list price is over $1,000,000. High prices like this can make it difficult to purchase a home without having to get a jumbo loan.

What would a jumbo loan mean for your finances? The upfront cost alone can be prohibitive for many borrowers. While conforming loans allow down payments as low as 3%, most jumbo loan borrowers are required to put down a minimum of 20%. They’ll also need to have a credit score in the 700s and a DTI of 45% or lower to qualify.

If you’re able to meet these requirements, a jumbo loan may be beneficial for you. But before you enter the home buying process, be sure you know what the loan limits are for your area and that you understand what a conforming versus a nonconforming loan would mean for your financial situation.

The Bottom Line: Remember Loan Limits If You’re Purchasing A High-Cost Home

If you plan on purchasing your home with a mortgage and have a sizable home buying budget, it’s important to understand what the maximum loan limits are in your county. While other loan types, such as jumbo loans, can remove the barrier of having to stay within a certain price limit, that means forgoing the benefits of getting a conforming loan.

If you’re wondering what your own personal loan limit should be, check out our advice on how to determine how much house you can afford.

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Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.