By JIM SMITH, Realtor
Both the Federal Housing Authority (FHA) and the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, have been in the headlines in the past couple weeks with their respective announcements that they will be raising mortgage loan limits for 2021. I exchanged emails with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about loan limits and what their implications are for potential purchasers. Here’s what I learned from her.
Although loan limits have been around for many years for both conventional loans (loans that conform to Fannie Mae and Freddie Mac’s loan standards) and FHA loans, (loans insured against default by the Federal government) the Housing and Economic Recovery Act (HERA) of 2008 has largely shaped how we know them today. The 2008 act established a base loan limit of $417,000 for conventional loans and, due to the declining price trend in the real estate market at the time, also included a mandate that this baseline limit would not increase until prices rose to previous levels. In 2016, FHFA increased loan limits for the first time in ten years, and they have increased every year since. HERA also mandated that FHA set loan limits at 115% of area median house prices, with a floor and ceiling on both limits.
2021 will see conventional loan limits for single-unit properties increase from $510,400 to $548,250 as a baseline. High-cost areas (which always included places like Aspen and Boulder, but now also includes the metro area) have a maximum loan limit that is a multiple of the area’s median home value, up to 150% of the baseline. Denver, Jefferson, Adams, Arapahoe, Broomfield, and Douglas counties will all be seeing an increase from $575,000 to $596,850. Boulder county increases to $654,350. The increase in these limits means that more borrowers will be able to qualify for a conventional loan versus having to obtain a high-balance or jumbo loan, which typically come with higher interest rates.
It’s important to remember that purchase price does not necessarily correlate with loan limits. If a borrower plans, for example, to purchase a $750,000 property but puts a significant amount of money down, thus bringing their loan amount under the conforming limit, they can still qualify for a conventional loan.
The FHA has also increased loan limits for 2021, with a national conforming limit of $548,250. In the majority of the Denver metro area the loan limit has increased to $596,850, up from $575,000 in 2020. The FHA’s loan limit increases are tied closely to the FHFA’s conventional loan limit increases.
Although loan limits are most frequently mentioned in terms of single-family homes or one-unit properties, both conventional and FHA loans also impose limits on duplexes, triplexes and fourplexes. These increase at the same time and at the same frequency as single-unit loan limits. In the case of the FHA, which also insures Home Equity Conversion Mortgages — also known as HECMs or Reverse mortgages — there will be a 2021 limit increase to $822,375. Unlike traditional loan limits, this increase applies across the board, regardless of what market the home is located in.
2021 is sure to be a year of changes, and mortgage loan limits are no exception. The increase in limits for both FHA and conventional loans matched with historically low rates and 3-3.5% down payment options just might be the ticket to purchasing your dream home.
Regardless of what loan type you are seeking, I recommend giving Jaxzann Riggs with The Mortgage Network a call today at (303) 990-2992.