New 2022 Conventional Loan Limits
It probably won’t surprise you to learn that home prices have been on the rise this year. According to Forbes, the average price of homes in 2021 will likely increase 14% compared to 2020.
The rising price of homes isn’t exactly good news for most homebuyers, but it isn’t all bad. The Federal Housing Finance Agency (FHFA) recently announced their new conforming loan limits—the highest amount allowed for most conventional loans—and the number is record-breaking in the best way.
The 2022 conforming loan limit for single-family homes in most markets is $625,000. That’s an increase of $76,750 compared to the 2021 limit of $548,250. The change symbolizes the highest dollar amount increase in a conforming loan limit since 1970, and the new loan limits go into effect in November 2021.
So what does this conventional loan limit increase mean for your wallet? Read on to find out.
What Are Conforming Loan Limits?
There are government-sponsored enterprises (GSE) that are federally backed mortgage companies that support the country’s home loan market. Rather than offer loans themselves, these GSEs purchase mortgages from lenders, then repackage them as mortgage-backed securities for investors.
However, GSEs don’t just back mortgages willy-nilly. Every mortgage they “buy” must meet their standards, which ensure the loan is stable. These standards include minimum credit scores, maximum debt-to-income ratios, minimum down payments, and, of course, loan limits.
Loan limits predetermine the maximum amount most borrowers can borrow under these conventional loans—i.e., what those GSEs will accept.
High-Cost Area Loan Limits
While the baseline loan limit in 2022 is $625,000 in most areas, the loan limits do take location into account. In high-cost areas, the loans can be up to $937,500. However, the limit may range between these two limits based on your location.
Wondering if you live in a high-cost area? Check out the FHFA’s Conforming Loan Limits Map. (Here’s a hint: Currently, the only counties in North Carolina or South Carolina with higher limits are Camden, Pasquotank, and Perquimans Counties in NC.)
And keep in mind, a larger loan—even a larger conventional loan—means higher payments.
How Are Conforming Loan Limits Determined?
Every year, the FHFA studies average home prices across the country and adjusts the conventional loan limit to reflect that average. They use their House Price Index report to understand these trends.
Because the average home price rose significantly in 2021 (from $389,400 in 2020 to $408,800 in 2021), the new loan limit is also significantly higher.
It’s also important to note that the loan limit does not necessarily increase every year. In fact, following the housing crash in 2009, the limit didn’t increase for ten years. That’s because, again, the loan limit is tied to the current housing market. If house prices increase, so do the loan limits. If house prices don’t increase, the loan limit will likely remain the same.
Remember, GSEs are tied to the federal government, so it makes sense that a government entity like the FHFA would set these loan limits.
What Is a Jumbo Loan?
If potential homebuyers want to purchase a home for more than their local conventional loan limit dictates, they must instead turn to a jumbo loan.
While jumbo loans are useful in that they allow for homeowners to borrow larger amounts—for example, to purchase a luxury home—they have a lot of disadvantages. Jumbo loans are not backed by GSEs because they’re seen as too risky. Jumbo loans are harder to qualify for because they require the buyer to have a higher credit score and a larger down payment.
Why Is an Increase in Conforming Loan Limits Good for Buyers?
So, why is this loan limit increase good for home buyers? The answer is simple. By increasing the conforming loan limit, more home buyers are able to get a conforming loan, rather than a jumbo loan. In doing so, they can avoid large down payments and other hurdles, like near-perfect credit score requirements.
Most jumbo loans require a minimum down payment of 20%, whereas conforming loan down payments might be as little as 3%. Similarly, qualifying for a jumbo loan usually requires a credit score in the 700s and a debt-to-income ratio of 45% or lower to qualify. The qualifications for conventional loans tend to be more lenient.
Plus, most lenders just prefer to work with conforming loans. Because these loans are backed by GSEs, they’re a safe bet. That means it’s probably easier to find a lender to work with if you qualify for a conventional loan.
Increasing the conforming loan limits to better reflect the current housing market allows more homeowners to buy the house of their dreams—without the headache of a jumbo loan.
If you’re looking at buying a luxury home in North Carolina or South Carolina and the price tag is higher than the local conforming loan limit, there may be a workaround. If you can put down a large down payment, you may be able to lower the loan amount to below the conforming loan limit.
Qualifications for New Conforming Loan Limits
Thinking of taking advantage of these new conforming loan limits (and low interest rates) to buy a house? Here’s what loans will qualify for these new limits:
- Of course, these limits apply only to GSE purchase (or refinance!) transactions
- The property you purchase can be a one-unit, owner-occupied house, a second home, or an investment property
- The new limits apply to new submissions only (so you can’t access them retroactively—unless you choose to refinance)
That’s pretty much it! They’re called conventional loans because they’re, well, pretty conventional, and generally most home buyers will qualify.
Choose Dash for Your Conforming Loan
These loans may be conventional, but Dash Home Loans is anything but. Your very own Mortgage Coach is here and ready to help, whether you’ve got more questions about conforming loan limits or are ready to apply.
Sure, we have a wealth of knowledge, but we’re much more than just our great minds. We harness the power of technology and our Mortgage Coaches (no middlemen) to get your loan ready fast. And with the Dash Loan Closing Guarantee, there’s no way to lose.
We’re now offering conventional loans of up to $625,000. Contact Dash Home Loans today to get started!