2021 loan limit compliance: what investors need to know
A lot real estate investors do not have the capital on hand to buy income properties right away. On the contrary, they must ask for a mortgage just like buyers looking to buy properties for a living on their own.
Each year, the Federal Housing Finance Agency (FHFA) sets a limit on conforming mortgages to be acquired by Fannie Mae and Freddie Mac, the government-sponsored entities that purchase these loans. And given the way house prices have gone up in 2020, it’s no surprise that compliant loan ceilings increase in 2021.
New compliant loan limits
For most of the country, the compliant loan limit for single unit properties will be $ 548,250 in 2021. This is a substantial increase from $ 510,400 in 2020.
Why the jump? Compliant loan limits are adjusted annually to reflect changes in house prices. According to the most recent FHFA Home Price Index, home values increased by 7.42% on average between the third quarter of 2019 and the third quarter of 2020. Thus, compliant loan limits increase proportionately.
Meanwhile, in some parts of the country the compliant loan limits will be higher, namely in areas where the median home value is higher. For Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the compliant loan limit will be $ 822,375 for single-unit properties in 2021.
Stick to the limits
Exceeding the aforementioned loan limits will push you to giant mortgage territory, and it’s not necessarily a place you want to be. Jumbo loans are more difficult to obtain than conforming loans, and interest rates may be less competitive. Investors who stick to compliant loans may find it easier to obtain the financing they need to build their portfolio.