The Federal Housing Finance Agency (FHFA) recently announced the baseline of Fannie Mae and Freddie Mac conforming loan limit (CLL) will increase by 7.42% in 2021.
The loan limit for single unit property mortgages acquired by Fannie Mae and Freddie Mac will go from $510,400 to $548,250. This will mark the fifth consecutive year of conforming loan increases from the FHFA. Conforming loan limits increased for the first time in 10 years during 2016 and has gone up by $131,250 since.
Setting the Limit:
The CLL sets the maximum size of a mortgage that government-sponsored enterprises, Fannie Mae and Freddie Mac, can buy or guarantee. The maximum number is determined by the Housing and Economic Recovery Act of 2008. The act requires that the baseline limit be adjusted each year to reflect the change in the average U.S. home price. Data from the recently published third quarter FHFA House Price Index showed that home prices increased an average of 7.42% between the third quarters of 2019 and 2020. This percentage is what sets the new CLL maximum for 2021. The limit increase will give more people the opportunity to become homeowners, especially those in high-cost areas.
High-Cost Area Limits:
In 2020, median home values generally increased in high-cost areas. The home values in these areas drove up the maximum loan limits in additional locations. Areas are considered high cost when 115% of the local median home value exceeds the baseline CCL. These areas are given a higher baseline loan limit and have a set “ceiling” that is 150% of the baseline limit. The new ceiling loan limit for one-unit properties in most high-cost areas will be $822,375 — or 150% of $548,250.
The announcement made by FHFA states, “As a result of generally rising home values, the increase in the baseline loan limit, and the increase in the ceiling loan limit, the maximum CLL will be higher in 2021 in all but 18 counties or county equivalents in the U.S.”
Click here to see a map of the new Fannie Mae and Freddie Mac conforming loan limit across the U.S.
Additional FHFA Resources:
- List of 2021 maximum loan limits for all counties and county-equivalent areas in the U.S.
- A map showing the 2021 maximum loan limits across the U.S.
- Detailed description of the methodology used to determine the maximum loan limits in accordance with HERA.