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    Mortgage loan limits — or how much you can actually borrow from a lender — are rising next year, both on FHA loans and on conforming ones.

    The news was announced by the U.S. Department of Housing and Urban Development and the Federal Housing Finance Agency over the last few weeks and will go into effect January 1, 2021.

    Do you plan to refinance your existing mortgage or buy a new home in the coming year? Then you’ll want these new limits on your radar.

    Here’s what you need to know for each type of loan.

    FHA loans

    The maximum amount you can borrow on an FHA loan varies by market, with loan limits higher in more expensive housing markets. Starting in 2021, the baseline limit will be $356,362 — a jump from 2020’s $331,760. In those higher-cost areas, the ceiling is $822,375, up from $765,600 this year. 

    For HECM loans — also called reverse mortgages — the limit is also $822,375. These are also insured through the FHA.

    Dana Wade, FHA’s assistant secretary for housing and federal housing commissioner, seemed to take issue with the much higher limits, stating in a press release: “FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better-served by the conventional market. FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer.”

    Conforming mortgage loans

    On conforming loans — or conventional mortgages that qualify for purchase by Fannie Mae or Freddie Mac — the limits are higher (at least in most markets).

    The new baseline limit is $548,250, up from $510,400 this year, and in costlier markets, there’s a threshold of $822,375. Based on these changes, the FHFA reports that conforming loan limits will rise in all but 18 counties in the U.S.

    New mortgage limits not high enough?

    If you’re looking to buy a house in a higher price range than those noted above, then you still may have options. A good one? That’d be the jumbo loan — a type of conventional mortgage loan designed for higher-priced properties.

    Jumbo loan limits are much higher than those on FHA and conforming loans, often reaching well into the millions. And though the exact requirements you’ll need to meet will vary by lender, these jumbo loan programs tend to be more strict than other mortgage options you’ll encounter on the market. (The higher loan amounts make them riskier for mortgage lenders to offer. Therefore, they need to be extra careful about who they loan to. For these reasons, they also may come with higher interest rates.)

    In general, you can expect to need a good credit score and decent-sized down payment to qualify. Here’s a look at Embrace’s recently expanded jumbo loan product now:

    • Mortgage Loan limits: You can borrow up to $1.5 million with a 10% down payment, and up to $2.5 million with a 20% down payment.
    • Credit score: You’ll need at least a 740 credit score to qualify.
    • Loan type: You can choose from either a fixed-rate or adjustable-rate loan, depending on your goals and how long you plan to be in the home. Your loan officer can help you determine the best option for your situation.
    • Use: Embrace jumbo loans can be used for both rate-and-term refinancing and for purchasing a new property. They are not available for cash-out refinancing.
    • Property requirements: The home being mortgaged must be your primary residence. These loans cannot be used on second homes or investment properties.

    The bottom line on increasing mortgage limits

    Home prices are rising, but so are loan limits, so there’s plenty of opportunity to buy a new house in 2021. If you’re buying in a higher-priced market or just eyeing more expensive properties, then give Embrace’s newly expanded jumbo loan product a look.

    Want to learn more about these loan programs and other methods of financing? Get in touch with a loan officer at Embrace Home Loans today.

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