2021 Conforming Loan Limits Just Went Up in Hampton Roads and What that Means for You
To understand what conforming loan limits are and
why they are important we need to talk about the two Government Sponsored
Enterprises (GSE’s), Fannie Mae and Freddie Mac. Both Fannie and Freddie
provide liquidity to lenders by buying back mortgages up to a certain amount
based on the type of property; these amounts are known as conforming loan
limits. Fannie and Freddie have strict rules about the type of loans they buy
back—not only do the loans have to fall within a certain dollar and property
type, the borrowers must also be vetted as credit worthy.
Once they buy back these mortgages, Fannie and
Freddie either keep them in their own portfolios or they bundle them into mortgage
backed securities (MBS) and sell them to investors guaranteeing both the principal
and interest. Because the US government guarantees the return of principal with
interest, this makes these securities very attractive to investors who are
willing to accept a guaranteed payment over a bond that may offer higher
interest but could lose the principal.
Conforming loan limits go up yearly and the table
below shows the conforming limits in Hampton Roads for 2021 and in 2020. Each
time housing prices rise, mortgage loan limits increase.
|
Year |
Single Unit |
2 Unit |
3 Units |
4 Units |
|
2021 |
$548,250 |
$702,000 |
$848,500 |
$1,054,500 |
|
2020 |
$510,400 |
$653,550 |
$789,950 |
$981,700 |
Since Fannie and Freddie guarantee these loans,
lenders are willing to make more of these types of loans to borrowers because
their risk is lower and they can charge lower interest rates and fees to
borrowers. On the other hand, non-conforming loans, which are loans above these
amounts, are expectedly more expensive because of greater risk for the lender.
These loans are called “jumbo loans” and are less attractive to lenders because
they are harder to sell (Fannie and Freddie won’t buy them). In order to sell
these homes on the secondary market, investors will want a higher interest rate
because the principal is not guaranteed and these higher rates are passed on to
the borrowers in the form of higher mortgage rates.
If you are interested in buying a home above the conforming loan limit, you can make a larger down payment or use two loans (80/20 loan) to buy the property; the 1st loan is a conforming loan and the 2nd is an equity line. Talk to your lender to see what options are open for you and I’m always happy to talk about your real estate plans as well: https://calendly.com/liz-schuyler
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See all homes for sale here: https://www.hamptonroadsrealestate.us/
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