Each year, the Federal Housing Finance Agency (FHFA) sets new baseline loan limits for various types of home loans to reflect the average home price in the U.S. Conventional loans, also known as conforming loans, are guaranteed by Fannie Mae and Freddie Mac and make up most of the loans in the U.S. As you can imagine, some home buyers may seek a loan above the conforming limits. In these cases, they may qualify for a non-conforming loan, known as a jumbo loan. Another common type of home loan is an FHA government loan (Federal Housing Administration).
Conforming Loans and High Balance Loans
Conforming loans were designed for homebuyers who meet the guidelines set by Fannie Mae and Freddie Mac, and for those who seek a mortgage that falls under the baseline loan limit. Most importantly, there are benefits to conforming loans that may include lower mortgage rates and a lower down payment.
Conforming Loan Limit Increase for 2022
Some areas of the U.S., such as San Francisco and New York City, have loan limits that are set at a higher amount, since the average home prices are significantly higher in those areas. Also known as High Balance Limits, these limits are 150% of the conforming baseline limits. Therefore, home buyers purchasing a home in those bigger metropolitan areas can still meet the conforming loan criteria.
There are many reasons why a home buyer may not qualify for a conforming loan, including, but not limited to: loan amounts higher than the conforming limits, credit, and down payment requirements. In most of these cases, they likely have alternative options. For instance, if the loan amount exceeds the conforming loan limit, they may instead qualify for a jumbo mortgage. Because non-conforming jumbo loans are considered riskier for lenders, they often require a heftier down payment, higher mortgage rate, and more stringent credit qualifying criteria. On the other hand, if the buyer does not qualify for a conforming loan based on other circumstances, they may qualify for an FHA loan. FHA loans are government-based loans that have more lenient credit requirements and require as little as a 3.5% down payment. As with conforming loans, FHA loans also have a limit that rises each year and is 65% of the conforming baseline limit.
What’s the Conforming Loan Limit Increase for 2022?
Below is a table describing the increased limits for the programs we previously discussed. As you can see, the limits for high-balance loans and FHA loans are directly based on the current conforming loan limits.
Conforming Loan Limit Increase for 2022 Table (along with FHA limits for 2022)
The FHA national low-cost area mortgage limits, which are set at 65% of the national conforming limit of $647,200 for one-unit property, are, by property unit number, as follows:
- One-Unit: $420,680
- Two-unit: $538,650
- Three-Unit: $651,050
- Four-Unit: $809,150
The FHA national high-cost area mortgage limits, which are set at 150% of the national conforming limit of $647,200 for a one-unit property, are, by property unit number, as follows:
- One-Unit: $970,800
- Two-unit: $1,243,050
- Three-Unit: $1,502,475
- Four-Unit: $1,867,275
How Does this Affect Prospective or Former Home Buyers?
Conforming loans are advantageous for those who qualify, as they provide many long-term financial benefits. Therefore, it is essential to know whether you qualify for this type of mortgage. If you are a previous home buyer and had to take out a jumbo loan because you were over the conforming loan limits, this may be a great time to refinance if your loan now falls under the new limits. Alternatively, if you currently have an FHA loan, you may want to investigate refinancing in the event you now qualify for a conventional loan. If you are a first time home buyer, the increase in conforming loan limits is another positive check mark as to why it is time to buy your first home! Regardless of your situation, if you are looking to purchase, refinance, or just inquiring about the positive changes for home loans in 2022, you should reach out to a trusted loan officer to further inquire.
If you are interested in taking out a home loan or refinancing your current loan, be sure to contact a loan officer today!