New Conforming Loan Limits for 2022 Could Mean Big Savings

Halfway through 2022, the U.S. housing market is in a weird place. With record-high home prices and rising interest rates, some buyers may be second-guessing whether now is the right time to purchase a new home.

As it turns out, now could be a great time for you to make the move because 2022 conforming loan limit increases have the potential to save homebuyers thousands of dollars.

The Lowdown on the Current Housing Market

Realtor.com recently released its updated 2022 housing forecast, which amended the existing home median sales price appreciation from a predicted 2.9 percent increase to 6.6 percent. 

The report shows a slight decrease in forecasted existing home sales and that existing home for sale inventory will increase as much as 15 percent (up from the original forecast of 0.3 percent). This increase in available inventory is good news for buyers who have been unable to find the home they are looking for in a low-inventory market.

As expected, mortgage interest rates are on the rise. Rates are currently hovering around 5.7 percent on average and are expected to fall anywhere from 5-7 percent by the end of the year.

However, new conforming loan limits in 2022 can help offset some of these increases, making it possible for buyers to purchase their first home, upgrade to a larger space, or relocate for a change of scenery.

Understanding Conforming vs. Nonconforming Loans

So, what exactly is a conforming loan, and how can it save homebuyers money in what, by all accounts, is a very expensive market?

Essentially, a conforming loan is a conventional loan under a specified dollar amount that is backed by Fannie Mae and Freddie Mac. Conforming loan limits are set each year by the Federal Housing Finance Agency (FHFA) based on their House Price Index (HPI) report.

Nonconforming loans are mortgage loans that fall outside of standard Fannie Mae and Freddie Mac guidelines, such as jumbo loans, and government-backed mortgages such as Federal Housing Administration (FHA), United States Department of Agriculture (USDA), and Department of Veterans Affairs (VA) loans.

Factors that influence whether you qualify for a conforming or nonconforming loan include:

• Mortgage loan size
• Credit history
• Credit score
• Debt-to-income ratio
• Down payment

Advantages of a Conforming Loan

The main advantage of conforming loans is that they make homebuying more affordable for the average household. 

Conforming loans are easier to qualify for, and lenders may accept a lower credit score or smaller down payment. Conforming loans also offer a lower interest rate than nonconforming loans because they are considered a lower risk for the lender compared with a jumbo loan or other mortgage loan type that can’t be underwritten by Fannie Mae or Freddie Mac.

Conforming Loan Limits in 2022

The Housing and Economic Recovery Act (HERA) requires that the baseline conforming loan limits for Fannie Mae and Freddie Mac be adjusted each year to reflect the change in the average U.S. home price.

According to the FHFA HPI, house prices increased an average of 18.05 percent between Q3 2020 and Q3 2021; therefore, the baseline conforming loan limit in 2022 also increased 18.05 percent. The baseline increase applies to both single-family residences and multiunit homes, with conforming loan limits adjusted accordingly.

What this looks like in real numbers is a baseline conforming loan limit increase of $98,950 from $548,250 to $647,200 in U.S. regions with an average cost of housing. 

However, in counties where housing costs far exceed the conforming loan limit, the baseline is higher. For example, in California’s San Francisco and Los Angeles counties, the loan limit increased by $148,505, from $822,375 to $970,800. 

What the Increase in the 2022 Conforming Loan Limit Means for Homebuyers

The increase in conforming loan limits is good news for homebuyers who are looking to make a move in 2022.

With the current elevated home prices and increasing interest rates, conforming loans can save qualified buyers a significant amount of money in both the short and long term by offering lower down payment requirements and lower interest rates than they’ll get with many nonconforming loans or a jumbo loan.

For example, a first-time homebuyer in an average-cost county may be able to borrow up to $647,200 at an average interest rate of about 6 percent with only 3 percent down. Buyers in high-cost counties will potentially save big with a conforming loan because they only require 5 percent down versus as much as 20 percent down for a jumbo loan. 

The 2022 loan limit increase also benefits those who purchased a house for more than the previous conforming loan limit. These homeowners may be able to refinance at the new limit and remove mortgage insurance from their monthly payments. 

As with any loan, borrowers must meet certain qualifications to get the lowest rates and largest loans. In the case of conforming loans, the factors that have the most impact are your credit history, credit score, and debt-to-income ratio.

How to Take Advantage of the 2022 Conforming Loan Limit Increase

Higher conforming loan limits are welcome news for homebuyers in today’s unusual market. Whether you are ready to take advantage of today’s higher loan limits before interest rates increase again, or you just want to learn more about the benefits, we would love to talk.

Contact us, and a member of our highly experienced FFB Mortgage Lenders team will be in touch to help you get started down the path to homeownership, relocation, or refinancing.