New and existing homeowners will soon have more flexibility when taking out a new home mortgage. That’s because the Federal Housing and Finance Agency (FHFA) has recently announced the new higher conforming loan limits for 2022.
The conforming loan limits create a standard for loan amounts across the county of which aggregators Fannie Mae and Freddie Mac 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 housing market have warranted additional increases starting in January of 2022. Here is a closer look at where the new 2022 loan limits will stand and why they are changing.
What Will the New Loan Limits Be?
The Federal Housing Finance Agency (FHFA) released the new conforming loan limits slightly later this year, although the announcement often coincides around same time when the agency publishes it’s House Price Index (HPI).
This had lenders forecasting exactly what the new conforming loan limits would be heading into the new year. The FHFA’s Housing Price Index usually 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 estimated increase by roughly 12.83% compared to the third quarter of 2020.
Monthly data showed incremental price increases for part of the third quarter and additional gains helped push the estimated baseline conforming limit to somewhere around $627,230.
In general, these estimates were close to predicting the new limits, but ultimately came up short. A recent press release from the FHFA confirms the new conforming loan limit for a 1-unit property will be $647,200, an increase of nearly $100,000 from the previous year2.
The amounts have also adjusted upward for multi-unit residential properties measuring at $828,700 for 2-unit properties, $1,001,650 for 3-unit properties, and $1,244,850 for 4-unit properties2.
Similarly, the new limits also change the ceiling for properties located in higher-cost market area. The new ceiling loan limit for 1-unit properties will be $970,800 for 20222. A few states that routinely take advantage of higher-cost limits include Alaska and Hawaii.
Why Are They Changing?
There are a few reasons why the conforming loan limits are changing. The most notable reason is that the Federal Housing 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.
Non-owner-occupied properties as well as multi-family, 1–4-unit properties are eligible collateral for conforming mortgages.
The Federal Housing Finance Agency’s (FHFA) announcement containing the new conforming loan limits for 2022 will help support growth in the housing industry for the next year. In fact, many lenders are proactively originating loans set to close with the bounds of the new set limits during the first part of 2022.
Overall, home price increases have warranted adjustments to the conforming loan limits. Data shows that home prices are higher by a nominal, seasonally adjusted 18.05%2.
Increasing the conforming loan limits will hopefully provide additional flexibility for borrowers looking for more purchasing power. Not only that, but it should allow more borrowers to avoid having to utilize more expensive non-conforming programs and make it easier for borrowers to qualify for new credit.
1 Carter, M. (2021, October 11). Fannie, Freddie loan limits set for 50-year leap in 2022. Retrieved December 8, 2021, from https://www.inman.com/2021/10/05/fannie-freddie-loan-limits-set-for-record-50-year-leap-in-2022/
2 Federal Housing Finance Agency, Media. (2021, November 30). FHFA Announces Conforming Loan Limits for 2022 [Press release]. Retrieved December 8, 2021, from https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limits-for-2022.aspx