Buying a house can feel daunting, especially in today’s market. You have to consider your down payment, your credit score, how competitive your local market is… and the type of mortgage you’ll use.
Each mortgage option has its pros and cons, but the most common is the conventional mortgage. Unlike, say, FHA loans, conventional mortgages are not backed by the government.
One of the big perks of these mortgages is that conventional loan limits have higher loan limits than some government-backed mortgages.
And that’s important, because higher loan limits mean more potential buying power.
What's in this Article?
2021 conventional loan limits explained
Most conventional loans are what’s called conforming loans, which means they have to meet certain requirements set by the Federal Housing Finance Agency (FHFA). Among those requirements are loan limits, or the maximum amount a lender is allowed to approve borrowers for in a given area.*
The FHFA sets limits according to the median home price in an area, so you can actually see serious differences even within the same state.
Say you’re looking for a home in California. The loan limits near Los Angeles are substantially higher than in Humboldt County in the northern part of the state. That’s because of the difference in home prices.
Any time you’re buying in an expensive market, such as Los Angeles, San Francisco, Denver, or other major metropolitan areas, loan limits are going to be higher.
The FHFA sets loan limits annually, which means that if home prices go up, so will the limits.
What are the conventional loan limits in 2021?
The 2021 conventional loan limit for a single-family home is $548,250, up 5% from 2020, when the limit was $510,400.
As you might expect, loan limits are higher for multifamily homes. Loan limits are also significantly higher in high-cost cities and counties, and in Hawaii, Alaska, and some U.S. territories.
2021 Conventional loan limits
|Property type||Contiguous States; Washington, D.C. & Puerto Rico||High-cost areas, Hawaii, Alaska, Guam & the U.S. Virgin Islands|
However, not all high-cost areas are at the highest limit. For example, Denver’s limit is $596,850 and in Seattle, it’s $776,250 for a 1-unit property.
Wondering what the 2021 conventional loan limits are in your area? Look it up on the FHFA’s conforming loan limits map.
What do I need to know about ‘conforming high-balance’ loans?
Conforming high-balance loans are higher than the standard 2021 nationwide limit of $548,250, but at or below the increased limit for the high-cost area in which you’re buying.
As mentioned, Seattle has a 2021 limit of $776,250. So a loan of $700,000 would be considered a high-balance loan, since it’s more than the nationwide limit but less than the area limit.
Lenders have to follow strict rules when approving high-balance loans, including verifying that you have traditional credit and a credit score of 620 or higher. Because they are likely lending more money, and potentially increasing their risk, they can also add their own eligibility requirements, which may make it tougher to qualify.
If you don’t qualify for a conforming high-balance loan, you might consider increasing your down payment so you need to borrow less. You might also qualify to take out a second mortgage (also known as a “piggyback loan”) to get the primary loan amount down.
In the example above, the buyer needs a $700,000 loan. She could get a first mortgage for $548,250 then get a second mortgage for $151,750 to cover the entire amount while staying within standard conforming loan limits on the primary mortgage.
And if you need financing above the loan limits in your area? Then you may need a jumbo loan, which we’ll discuss in just a minute.
I live outside the continental US. Is my loan limit the same?
No, your maximum conventional loan amount isn’t the same. Alaska, Hawaii, Guam, and the U.S. Virgin Islands are designated high-limit areas, and therefore have limits 50% higher than the nationwide baseline limit of $548,250:
- Single-family home: $822,375
- Two-unit multifamily home: $1,053,000
- Three-unit multifamily home: $1,272,750
- Four-unit multifamily home: $1,581,750
What if my dream home costs more than the conventional loan limit?
If you want to buy a home that is more than the conforming loan limit, you do have some choices.
Make a larger down payment
For one, you can still take out a conforming loan, but you’ll need to make a higher down payment. That way, your loan amount is within the conforming limit even if your home price is higher.
Let’s say the home you want to purchase a home that costs $750,000, well above the $548,250 in your area. To remain inside the conventional loan limit, you’ll need to put down at least $201,750.
Before you get sticker shock at the cash you need to put down, take a breath. There are yet more options. You can get what’s called secondary financing to be able to afford the home.
Get a home equity line of credit (HELOC)
To continue with the above example, let’s say that you have $100,000 to put down. You may be able to take out a second mortgage to cover the remaining $101,750.
Depending on your circumstances, this second loan can be a home equity loan or home equity line of credit (HELOC). Keep in mind since this is an additional mortgage, you may have to pay additional fees.
You will also have to coordinate with the second mortgage lender to close on the same day as the primary mortgage. Some second mortgage lenders are accustomed to doing HELOCs for existing homeowners, where the closing date isn’t set in stone. Make sure the lender knows it’s for a home purchase with a specific closing date.
Choose a conforming high-balance loan or a jumbo loan
Also, like we mentioned before, you can also choose to find a conforming high-balance loan. These types of loans may have more strict requirements, such as a higher minimum down payment amount and lower debt-to-income ratios. They also may come with higher rates.
Then there are jumbo loans. A jumbo loan is a conventional mortgage, but it’s considered non-conforming. Technically, jumbo loans don’t have loan limits, and they’re designed to help people buy high-cost and luxury homes.
Jumbo loans are only offered by private lenders and are not insured by the government, Fannie Mae, or Freddie Mac. Some lenders require down payments of 10-20%, though each company can set their own terms, so you may find some who accept a lower amount down. Oftentimes, credit score requirements are higher as well.
2021 conventional loan limits FAQs
Most likely. Conforming loan limits are set annually based on national home prices, which skyrocketed in 2021. Usually, the Federal Housing Finance Agency (FHFA) releases the coming year’s limits in November or December. The FHFA compares home prices reported in its House Price Index during the third quarter versus the third quarter of the previous year. In 2020, home prices had increased more than 7% compared to 2019, which lifted conforming limits by $37,850. There could be an even larger dollar increase for 2022, due to rapid home appreciation in 2021.
No. Many lenders started offering conforming loans up to $625,000 starting in late-2021 in anticipation of a large increase for 2022. The official limit is still $548,250 in most areas. However, homebuyers and refinancing homeowners can get a bigger loan now by applying with lenders that offer increased limits, including Fairway Independent Mortgage Corporation, which owns Home.com. Lenders plan to hold these loans on their books until January when they can most likely sell them to Fannie Mae or Freddie Mac, assuming the agencies increase their limits to at least $625,000.
Conforming loans are types of conventional mortgages that adhere to the loan limits set by the Federal Housing Finance Agency (FHFA) and meet the underwriting requirements of Freddie Mac and Fannie Mae, the government-sponsored enterprises that insure conforming loans.
A conforming high-balance loan is one that is between the nationwide baseline limit of $548,250 and the local limit for the county. In most counties, there are no conforming high-balance loans available since the local limit matches the nationwide limit. But in expensive markets like Seattle, San Francisco, and New York City, higher local limits apply.
Technically there is no jumbo loan limit. Lenders can set their own jumbo loan limit, which can be upward of several million dollars.
Take the next step
Qualifying for a conventional mortgage can be much easier if you make sure the home you want is well within the conforming loan limits. You may have an easier time finding a lender if you don’t need a high-balance or jumbo loan.
Of course, loan limits are only one aspect of buying a house — you’ll want to make sure your credit is in tip top shape, you have reliable income, and you’ve gotten your debts as low as you can before applying for a loan.
*Loan limits refer to the maximum loan amount allowed in a given area. But lenders will determine how much you can borrow based on your credit score, income, down payment, debt-to-income ratio, and other factors. The loan limit in your area caps the amount a lender can possibly lend you in a mortgage, but the number you qualify for may well be under the loan limit anyway.
Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.