Understanding this year’s big changes in mortgage loan limits
For first-time buyers, the limit on what they can borrow impacts their ability to buy a home. And changing housing prices can affect the amount of money lenders can give you.
How? By affecting the yearly Federal Housing Administration Loan Limits.
What is the FHA Loan Limit?
The Federal Housing Administration (FHA) was created to support low- to moderate-income homebuyers. The FHA sets loan limits each year for buyers utilizing FHA loans (any loan from a bank or mortgage company that is insured or backed by the FHA). Those limits are based on the average home price for the area in which you are buying a home. The more expensive the average home, the higher the loan limit. The limit is calculated at 115% of the area’s median home price, or 150% in high-cost areas.
Each year, the FHA adjusts the loan limits based on the most current sales data available. The loan limits fluctuate with the industry, rising and decreasing with home prices. This is to ensure that buyers in high-cost areas have a fair chance at securing a loan that can help them get into an expensive market.
What are the FHA Loan Limits for 2021?
In the 65 high-cost U.S. counties where the median home price far exceeds the FHA’s loan limit floor, the FHA is increasing its 2021 loan limit to $822,375, a near $57,000 increase over 2020’s total of $765,600.
You can search for the loan limits for your area here, with the U.S. Department of Housing and Urban Development.
Why are FHA Loan Limits Up This Year?
In 2020, we saw a massive increase in home prices with huge year-over-year gains. Consistently low, record-setting interest rates have pushed the boom, with “easy money” for buyers creating a mad dash to purchase homes, leaving a lack of inventory around the country and driving prices up.
Because of the large increase in housing prices, the maximum loan limits will also increase in 3,108 U.S. counties. There will be no decreases in loan limits, which indicates that nationwide home sales and prices are strong.
Alaska, Hawaii, and Guam have higher loan limits due to their high cost of construction.
The new loan limits will be effective for any loans assigned on or after January 1, 2021. At Lennar Mortgage we work with each buyer individually to find loans that are a perfect fit. To find out how much home you can afford, connect with one of our brokers at lennarmortgage.com.