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I'm playing the anniversary edition of Skyrim and am only about 100 hours into the game. I have had Lydia for a long time. Now, I have the option to buy Stenvars services, causing me to need to dismiss Lydia. What happens to all of my loot she's carrying? Where does she do? Back to Breezehome or Dragons Reach?

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This happened to me when I had to leave Lydia in order to use another follower to sacrifice to Boethiah.

I found her at Breezehome, the house we own in Whiterun, since she is the housecarl.
And she still had my loot in her inventory.

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