The federal agency that oversees Fannie Mae and Freddie Mac announced that the conforming limits for mortgages will increase by more than 7% in 2021.

These limits restrict lenders on the maximum mortgage loan amounts they can offer through the FHA loan program. Due to home price increases, the Housing and Economic Recovery Act makes sure these limits can keep up so homebuyers, especially first-timers, can have the financial flexibility to achieve their dreams of homeownership.

Between the third quarters of 2019 and 2020, home prices increased by on average by more than 7%. In response, the Federal Housing Finance Agency says next year’s maximum limit for one-unit properties will be at nearly $550,000. The baseline maximum of these loans must also increase by the same percentage as the home price increases.

In high-cost areas, the new ceiling can be 150% of the maximum conforming limit. In some areas, that puts the limit at $822,375.

The Federal Housing Finance Agency was established in 2008 and oversees and regulates Fannie Mae and Freddie Mac, among others, to ensure they fulfill their mission and serve borrowers in a responsible manner.

Home prices grew at their fastest rate in nearly six years, boosting homeowner equity and stirring greater competition among eager homebuyers.

With super low interest rates, the housing market has become very competitive. In fact, the Home Price Index shot up by 7.3% over a 12-month span.

Heightened demand and supply constraints drove home prices to their current record highs. The pandemic’s uncertainty can potentially further strain supply and increase home prices even more. There is hope, however, that new construction will improve next year and provide some relief.

Further down the road, forecasters say the rate at which home prices increase will slow down. So, instead of a 7.3% increase annually, experts believe the number will hold closer to 2% next October.

Homeowners do not need to sell their home to enjoy the benefits of increased equity. Through a refinance, borrowers can pay off their existing loan, save money or even maximize their home equity through a cash-out refinance.

Even individuals with fairly new mortgages can save money through a refinance loan. That’s because as interest rates continue to fall to historic lows, borrowers can dramatically reduce the amount of interest they’ll pay over the life of the loan.

Additionally, a lower rate also means a smaller monthly mortgage payment, which can provide families with additional financial wiggle room during this uncertain time.

A cash-out refinance lets the borrower obtain a new loan for an amount greater than what they owe on the home. The additional money can be used to wipe out debt, take on home renovations or make a major purchase.

Some homeowners may decide to shorten the loan’s term by converting into a 15-year mortgage or add financial stability by switching to a fixed rate.