Many real estate investors don't have the capital on hand to buy income properties outright. Rather, they need to apply for a mortgage just like the buyers who seek to purchase properties to live in themselves.
Each year, the Federal Housing Finance Agency (FHFA) sets a limit on conforming mortgage loans to be acquired by Fannie Mae and Freddie Mac, the government-sponsored entities that buy these loans. And given the way home prices have increased in 2020, it's not surprising that conforming loan limits will be rising in 2021.
New conforming loan limits
For the bulk of the country, the conforming loan limit for one-unit properties will be $548,250 in 2021. That's a substantial increase from $510,400 in 2020.
Why the jump? Conforming loan limits are adjusted each year to reflect changes in home prices. According to the most recent FHFA House Price Index, home values increased 7.42%, on average, between the third quarter of 2019 and the third quarter of 2020. As such, conforming loan limits are increasing proportionally.
Meanwhile, in some parts of the country, conforming loan limits will be higher -- namely, in areas with higher median home values. For Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the conforming loan limit will be $822,375 for one-unit properties in 2021.
Sticking to the limits
Exceeding the aforementioned loan limits will push you into jumbo mortgage territory, and that's not necessarily a place you want to be. Jumbo loans are more difficult to qualify for than conforming loans, and interest rates can be less competitive. Investors who stick with conforming loans may have an easier time getting the financing they need to build their portfolios.