New Conforming Loan Limits 2022

 

New and existing homeowners will soon have more flexibility when taking out a new home mortgage. That’s because the Federal and Finance Agency (FHFA) is set to announce it will be increasing the conforming loan limits for 2022.

The conforming loan limits create a standard for loan amounts across the county of which aggregators and both must adhere too.

While borrowers are not limited to strictly one type of mortgage program, conforming loans offer several key benefits over many non-conforming counterparts.

For one thing, increasing the loan limits for conforming loans make them more accessible to the average borrower who might otherwise need to obtain a jumbo mortgage loan.

Similarly, conforming loans are priced more competitively and are often easier to qualify for compared to non-conforming programs.
Despite loan limit increases in 2019-21, changes in the seem to warrant yet another increase in the conforming loan limits for the start of 2022. Here is a closer look at what the forecasted 2022 loan limits will be and why they are changing.

What Will the New Loan Limits Be?

The Federal Finance Agency (FHFA) typically releases the new conforming loan limits for the next year around November, about the same time when it also publishes it’s House Price Index (HPI).

However, that hasn’t stopped many lenders from forecasting exactly what the new conforming loan limits will be heading into the start of 2022. Usually, the FHFA’s Price Index provides a decent baseline for where conforming loan limits are headed.

For example, the limit for single-family homes increased by $37,850, up to $548,250 in 2021 which correlated with a 7.4% increase in annual home price appreciation1.

Using similar methodologies, the home price index for the second quarter indicated an increase by roughly 12.83% compared to the third quarter of 2020. This alone should merit an adjustment to the baseline conforming limits up to approximately $618,570.

However, monthly data also shows incremental price increases for part of the third quarter. Although the HPI has yet to be published, additional gains are estimated to push the baseline conforming limit to somewhere around $627,230, assuming no price drops in August and September.
Based on their forecasts and anticipation of the conforming loan limits increasing, PennyMac and United Wholesale Mortgage both have announced increases to their allowable “conforming” loan limit.

The amounts would now sit at $625,000 for 1-unit properties, $800,250 for 2-unit properties, $967,250 for 3-unit properties, and $1,202,000 for 4-unit properties.

This will also change the ceiling for 1-unit properties located in higher-cost market areas to approximately $937,500. A few states that routinely take advantage of higher-cost limits include Alaska and Hawaii.

Why Are They Changing?

There are a number of reasons why the conforming loan limits are changing. The most notable reason is that the Federal Finance Agency wants to continue to support borrowers as home price appreciation continues in an upward trajectory.

Increasing the conforming loan limits will allow more borrowers to qualify for more affordable mortgage programs without being forced to explore more expensive alternatives.

Another reason why an increase to the conforming loan limits is a good thing is because it allows borrowers to work with more preferred lenders.

Borrowers want to work with lenders that offer mortgage programs conforming loan limits because it’s often easier to qualify for credit. These types of mortgages are often considered less of a risk for a lender to sell to investors in the secondary market.

Furthermore, mortgages that meet conforming limits can be quite flexible. For example, and do not restrict conforming loans to just mortgages secured by primary residences.

Non-owner-occupied properties as well as multi-family, 1–4-unit properties are eligible collateral for conforming mortgages.

Summary

The Federal Finance Agency (FHFA) is set to announce the new conforming loan limits for 2022 any day, but some lenders are proactively increasing their benchmark loan limit for conforming mortgages in anticipation for an expected increase.

Looking to the Housing Price Index as a leading indicator of how conforming loan limits will be adjusted, it seems evident that an increase will be warranted given the trajectory of home prices over the last year.
Overall, an increase to the current conforming limits should be beneficial to borrowers. Not only will it allow more borrowers to avoid having to utilize more expensive non-conforming programs, but it should also make it easier for borrowers to qualify for new credit.

Sources

1 https://www.inman.com/2021/10/05/fannie-freddie-loan-limits-set-for-record-50-year-leap-in-2022/

2 https://www.housingwire.com/articles/pennymac-uwm-raise-conforming-loan-limit-ceiling/?utm_campaign=Newsletter%20-%20Daily%20Download&utm_medium=email&_hsmi=166956634&_hsenc=p2ANqtz-81iOvjjeuIPtum37pTFIlCIUqD96Dugt2Qpw-GTA4KV_fD_JQb7rzF1dJcimLamPR1klnEVE_Qdf7FmtXhYqozSb8ePvq4soT7nuasgIvvd6VaCa4&utm_content=166956634&utm_source=hs_email

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