Loan Limits Increased: What does this mean for home buyers?

During the Thanksgiving week, another encouraging news regarding home mortgage loan came out. Federal Housing Finance Agency announced the upper limit for conforming loan will be increased in 2021. One-unit property's conforming loan limit will be increased to $548.250 and in high-cost areas, the maximum will be $822,375. The current limits are $510,400 and $765,600 in high-cost areas.

The increase amount is significant. How does this increase affect mortgage loan and buyers? And what is conforming loan? Many lenders do not hold the mortgage loan once the loan is issued but sell the loan to Fannie Mae or Freddie Mac, the two government-sponsored lending enterprises. You possibly know of Jumbo Loan, which indicates high loan amount. What you might not know is that Jumbo Loan are loans over conforming loan limits. Fannie Mae or Freddie Mac does not buy non-conforming loans, which make these loans potentially riskier. Therefore, loans that carry amounts higher than the conforming loan limits have more strict underwriting process (the process of evaluating the borrower/property the borrower wants to purchase) and sometimes carry higher interest rates.

The increase of the conforming loan limits allow home buyers to borrow more from their mortgage loan without triggering higher interest rates or a challenging underwriting procedure. This can help keep the home purchase cost low while you are buying a more expensive home. This is definitely a brilliant news to Californians who plan to buy home after home price continues to increase this year.