What the 2022 Conforming Loan Limits Mean for You

Last week, the Federal Housing Finance Agency (FHFA) announced its conforming loan limits for 2022. The new maximum borrowing amount for conventional loans for most of the country will be set to $647,200—a record-breaking 18% increase from the 2021 loan limit. These new loan limits combined with the current near-historically low interest rates create an incredible opportunity to break into the hotly competitive housing market. Let’s break down everything you need to know about the 2022 loan limits.

What are conforming loan limits?

Conforming loan limits are the maximum amount of cash that a homebuyer can borrow from a lender using a conventional loan. These limits are set by the FHFA every year to determine exactly how much a buyer can borrow without what’s known as a Jumbo Loan. Such limits are implemented to prevent overborrowing and foreclosures, serving as a protection to both the borrower and lender.

Why is the 2022 limit increase so large?

Next year’s $647,200 loan limit is an 18% raise from 2021’s limit of $548,250, constituting the largest ever loan limit increase. The FHFA uses the Q3 House Price Index to determine the new maximum every year, and the past two years have seen US home values skyrocket. The median sale price of a home in 2020 was $337,500. It now sits at $404,000! Therefore, the increased loan limits simply align with current home prices. 

However, the $647,200 loan limit isn’t universal across the US. In more expensive markets, such as California, New York City, Alaska, Hawai’i, and D.C., the new limits are even higher, topping out at $970,800. This is an increase from the 2021 upper-end limit of $822,375.

How does a loan limit increase affect you?

Due to the meteoric rise in home prices over the past two years, many prospective home buyers looking to purchase a home with a conventional loan were priced out of the market. As home prices went up and loan limits virtually stayed put, homebuyers had to either increase their down payments or opt for a Jumbo loan. Since Jumbo loans are often more complex, expensive, and harder to qualify for than conventional loans, homeownership became less attainable for many. 

However, such a substantial increase in loan limits for 2022 means that conventional loan buyers can once again be competitive in the market. More people will be able to afford houses without the need for more complicated loans, larger down payments, and stricter qualifications.

Is there a downside to the increases?

The only potential downside to such a significant rise in loan limits is that it may continue to fuel rising house prices. However, that hasn’t historically always been the case. For example, during the 2008 recession, loan limits increased while home values fell. 

Get a jumpstart on your 2022 conventional loan

Here at Directors Mortgage, we’ve been offering loan amounts at the estimated increased loan limits for the past month in anticipation of the new 2022 loan limits announcement. Reach out to a mortgage specialist in your area today to get a head-start on your 2022 conventional loan now. links.directorsmortgage.com/specialist.