A jumbo loan could fit you like a glove if you’re buying a more expensive home and need to borrow more than the conforming loan limits allow. So, if you’re looking at an upscale property or simply one in an area of the country where the cost of living is high, here’s what you need to know about the jumbo loan limits in 2021.
Mortgages aren’t one-size-fits-all and jumbo loans are no exception. Essentially, a jumbo loan is a mortgage that exceeds baseline amounts set by Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) guidelines. Since jumbo loans do not have upper limits established by the agencies mentioned, it’s up to your lender to determine the ceiling amount for jumbo loan limits, and whether it enforces it or not.
Minimum and Maximum Loan Amounts
If you are wondering whether you’ll need a jumbo loan, you need to consider the limits set for conforming loans and U.S. Federal Housing Administration (FHA) loans. The agency-set maximum limits for these loans provide a baseline for jumbo loans.
Most parts of the country have one maximum loan amount for conforming loans. In some high-cost areas, such as Washington D.C. and certain California counties, the threshold for the maximum conforming loan is raised.
For 2021, the Federal Housing Finance Agency raised the maximum conforming loan limit for a single-family property from $510,400 (in 2020) to $548,250. In high-cost areas, the ceiling for conforming mortgage limits is 150% of that limit, or $822,375 for 2021.
Those limits apply to conforming loans that follow Fannie Mae or Freddie Mac guidelines. A different loan limit kicks in if you’re buying a home in 2021 using an FHA loan, which is backed by the Federal Housing Administration. The FHA loan floor for 2021 is $356,362, up from $331,760 in 2020. The maximum limit for approximately 70 high-cost counties has been raised to $822,375, up from $765,000 in 2020.
Keep in mind, the Federal Housing Finance Agency may increase conforming loan limits again for 2022. If you are planning on taking out a mortgage loan in 2022, check back here for updates on loan limits.
Jumbo Loan Requirements
Because a jumbo loan means you’re taking out a larger-than-typical mortgage, lenders impose stricter requirements than they might for a traditional loan. They will examine several aspects of your financial health to assess whether you can afford a bigger mortgage and if you are likely to pay it back on schedule.
Lenders will look for qualities like a good, steady income, strong credit score and credit history, and low debt-to-income (DTI) ratio, among other benchmarks. This is because they want to know you can afford higher monthly payments and typically higher interest rates that come with jumbo loans as opposed to traditional mortgages.
Keep in mind, while a 20% down payment may not be required for conforming loans, some lenders require 20% (or more) for jumbo loans. This gives lenders increased confidence that you have skin in your new housing game.
Is a Jumbo Loan Right for You?
Now that you know more about jumbo loan limits, you can begin to determine if it’s your best choice for a mortgage. You’ll want to consider whether you will meet the requirements for a jumbo loan, and if you will be able to handle the larger costs associated with a bigger mortgage.
If you are in the market for a bigger home, you might also be in the market for a jumbo mortgage. So, as you conduct your home search, keep an eye on current jumbo loan limits and possible changes to jumbo loan limits for 2022. Talking to a jumbo loan expert can help you decide if you should go big with your mortgage in order to go home.
Interested in a jumbo loan with Ally Home? We’ll walk you through everything you need to know.
This chart lists only U.S. counties and territories with 2021 conforming loan limits above the standard $548,250. Don’t see your county in this chart? Your maximum conforming loan limit is $548,250.