On December 2, 2020, the U.S. Department for Housing and Urban Development (HUD) announced its new 2021 limits for single-family homes. This is a significant announcement if you are considering applying for a Federal Housing Administration (FHA) loan in 2021. An FHA loan is a home mortgage that is federally insured if the borrower defaults on payments to the loan. FHA loans are a desirable option for first-time homebuyers since the down payment minimum is extremely low at 3.5% when compared to a conventional loan that commonly requires a down payment of at least 20% to avoid private mortgage insurance (PMI).
HUD announced that they were increasing the FHA loan limit ceiling and floor in high-cost areas. This announcement means that there are more homes at higher price points that will qualify for FHA loans. The loan limit at $765,600 was increased to $822,375 in 2021, while the loan limit floor was increased from $331,760 to $356,362. According to the National Association of Realtors, the ceiling will rise to $1,233,550 in the states of Alaska and Hawaii, Guam, and the Virgin Islands.
The conforming loan limit, which is the floor and ceiling limits set by the Federal Housing Finance Agency (FHFA) each year that the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) will guarantee, will also increase. In 2021, the national conforming loan limit will be $548,250, while the national loan limit “floor” will be $356,362*. Areas where the loan limit is higher than this floor are considered high-cost areas.
*”Floor” applies to those areas where 115 percent of the median home price is less than the “floor” limit. – HUD
What Does This Mean For You?
HUD’s announcement means that they are responding to the increased price of houses and are reflecting that by raising their loan limit ceiling. This decision means that more homes at higher price points will be available to more consumers. If you want to move in 2021 and are thinking about opting for a non-conventional loan, try looking into an FHA loan. If you don’t have enough money for a conventional down payment, an FHA loan might be your best option to receive financing for your new place. Veterans, active-duty personnel, or their qualified surviving family members looking into FHA loans should also consider if a VA loan is better for them. To learn more about the differences between an FHA and a VA loan, check out our blog post here.
If you are interested in looking into your loan options, contact one of our Loan Advisors for more information.