The FHFA announced a substantial increase in conforming loan limits for 2022. Here's what that means for prospective homebuyers.
To match this year’s historic home price growth, the Federal Housing Finance Administration (FHFA) is raising conforming loan limits by nearly $100,000 – 18.05% – the biggest one-year jump in history.
The FHFA -- which oversees government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac -- set the new conforming loan limits for single-family properties at $647,200 for most of the country and up to $970,800 for high-cost areas including Alaska, Hawaii, and mainland locations with the highest home prices.
2021 vs 2022 loan limits chart
|Units||2021 Standard||2022 Standard||2021 High-balance||2022 High-balance|
In 2021, conforming loan limits were $548,250 for most of the country and up to $822,375 for high-cost areas.
Conforming loan limits impact how much homebuyers can borrow before having to switch to a jumbo loan, which requires a higher credit score, minimum down payment, and, traditionally, higher interest rates. The loan limit increase exactly matches the national average 18.05% home price growth from the third quarter of 2020 to the third quarter of 2022.
"Earlier today, FHFA announced the Conforming Loan Limits for 2022. Compared to previous years, the 2022 Conforming Loan Limits represent a significant increase due to the historic house price appreciation over the last year. While 95 percent of U.S. counties will be subject to the new baseline limit of $647,200, approximately 100 counties will have conforming loan limits approaching $1 million.” said FHFA Acting Director Sandra L. Thompson.
The near-million-dollar loan limit – or “ceiling” – for high-cost areas is based on a 150% of the baseline limit, as has been the practice in previous years. The map below shows which areas have loan limits exceeding the baseline.
2022 conforming loan limits map
The announcement was by no means a surprise. In fact, based on home price growth some mortgage lenders anticipated the loan limit hike and began offering larger conventional loans up to $625,000 in October.
Conforming loan limits set maximum prices at which GSEs Freddie Mac and Fannie Mae can buy mortgages on the secondary market. With the limits raised, lenders can offer larger conventional loans to homebuyers with the assurance that Freddie and Fannie will accept them into their portfolios.
This is beneficial to conventional loan homebuyers that want to avoid the higher qualification standards and costs of a jumbo, or non-conforming, loan. Jumbo mortgages are for loan amounts that exceed the FHFA’s loan limits. These loans often require a 10% down payment, 680 credit score (this varies by lender), and can come with higher interest rates.
Conforming loans – mortgages for amounts less than the loan limits – typically require a 3% minimum down payment, 620 credit score, and traditionally offer lower interest rates.
New conforming loan limit example
Under the 2021 loan limits, homebuyers needed a jumbo loan for a $650,000 mortgage. That meant a minimum 10% down payment, or $65,000, and perhaps a higher interest rate.
Using the 2022 loan limits, qualifying homebuyers can get a conforming conventional mortgage up to $647,200 in standard areas. Keep in mind, though, that the limit is on the loan amount and not on the purchase price.
With a minimum 3% down payment, the home's purchase price could go as high as $667,200. With 10% down, the purchase price could exceed $719,000.
According to the NAR, the median down payment for first-time homebuyers in 2019 was 6%, a level that isn't available with most jumbo mortgages. Now, more homebuyers will be able to afford their area's home prices without making a large down payment.
The new loan limits give homebuyers a little more breathing room in terms of affording a home loan. However, they are also a stark reminder of the unprecedented home price growth in 2021.