2022 Loan limits edge toward $1 million

2022 Loan limits should be close to $1 million

Every year, the Federal Housing Finance Agency (FHFA) raises loan limits for conforming mortgages. The next announcement is due before Nov. 30.

It’s very likely 2022 loan limits will jump to nearly $1 million in areas with high home prices. And even in places where home prices are lower, we expect to see those limits soar to around $650,000.

Higher loan limits are great news for home buyers and homeowners alike. This move should help to keep homeownership affordable even in places where home values have skyrocketed in recent years.

How high will conforming loan limits go?

Conforming loan limits vary by location. They’re higher in expensive metros, and a little lower in more moderately-priced areas.

For 2022, the conforming loan limits for a single-family home are expected to be:

• $650,000 in most areas
• Just under $1 million in high-priced areas like NYC and Los Angeles

Loan limits will be even higher for multifamily homes with two to four units. So if you’re planning to buy a multi-unit home or investment property, you’ll have more options in 2022 as well.

So, why are Fannie Mae and Freddie Mac loan limits rising so sharply? Is it because the federal government had a sudden rush of generosity?

Not quite. The agencies’ regulator, the FHFA, has a statutory duty under the Housing and Economic Recovery Act of 2008 (HERA) to change those limits each year to keep pace with rising home prices nationwide.

And real estate prices have shot up in 2020 and 2021.

Indeed, at the time of this writing, the latest Case-Shiller National Home Price Index says home prices rose 19.8% year-over-year. And that was a record.

So the huge hike in loan limits is a direct result of high home price inflation.

What the new loan limits means for home buyers

The conforming loan limits for 2021 max out at $548,250 in most areas, and at $822,375 in expensive housing markets.

Anyone who wants to borrow more than that currently has to turn to a jumbo mortgage, which is any loan higher than those limits.

Now, jumbo mortgages are fine if that’s all that’s available to you. But it can be tough to qualify for one. And their mortgage rates are often higher than those for conforming mortgages backed by Fannie Mae or Freddie Mac.

Benefits of higher conforming loan limits

Higher loan limits mean fewer borrowers will have to use jumbo loans in 2022. And that could open up pricier housing markets to a wider range of buyers.

In the past, jumbo loans often required a down payment of 20% or 30% of the sale price and a 740 credit score. And many lenders still have those sorts of requirements, usually offering competitive rates to those attractive borrowers.

It may be possible to get jumbo financing these days with just 5% or 10% down and a credit score as low as 680. However, you’ll likely have to pay a significantly higher mortgage rate than someone with high credit and 20% down.

This is where the new conforming loan limits can help.

You might soon qualify for that higher-priced home using a conforming loan. And those are available with just 3% down, a 620 credit score, and often an attractive mortgage rate. (However, don’t forget you may have to pay for mortgage insurance for a period.)

What about FHA limits?

FHA loan limits are changed on the same basis as those for Fannie and Freddie. So they’re likely to rise in 2022 by the same proportion.

However, they’re calculated slightly differently. So the standard FHA loan limit in modestly-priced areas is lower than that for conforming mortgages.

In some places, the loan cap for FHA loans in 2021 was as low as $356,362. But the cap in areas with very high average home prices was the same as the one for conforming mortgages: $822,375.

If FHA loan limits rise by the same proportion as those for conventional loans — as expected — we could see 2022 FHA loans for a single-family home as high as:

• $422,000 in most areas
• Just under $1 million in high-priced areas like NYC and Los Angeles

As with conforming loans, FHA loan limits will be higher for 2-, 3-, and 4-unit properties.

You can discover the existing conforming and FHA loan limits in your area using this lookup tool.

What about VA loan limits?

VA loan limits were abolished in 2020. So those eligible for VA loans (including most veterans, service members, and their surviving spouses) can borrow as much as they can afford.

But expect lenders to verify that affordability with a microscope. For very large sums, you’ll need to show that you’re a creditworthy borrower with plenty of income and financial resources.

Official 2022 loan limits to be announced this month

Remember, none of the new information above has yet been officially confirmed. And we’ll have to wait for an announcement, expected before Nov. 30, for the precise figures.

After being announced, the new loan limits will go into effect on Jan 1, 2022.

But it’s highly likely FHFA’s announcement will confirm that rises are coming. And that the actual figures will be close to the ballpark ones we’ve quoted.

After all, the regulator uses the “HERA formula” to calculate rises. And that’s laid down in law.

Your next steps

What does all this mean for a borrower who wants to buy a home in the relevant price range? Well, that will depend on your personal circumstances and goals.

If you’ve already found your dream home, you probably shouldn’t mess with your purchase at this stage. After all, the seller’s unlikely to hang around waiting for you to organize a 2022 mortgage. And you may risk losing the property.

Of course, if you find you can get a better deal with a conforming loan than the jumbo one you have lined up, you could always refinance later, providing mortgage rates don’t rise too high in the meantime.

But suppose you haven’t found that dream house yet. You then need to model your options using a mortgage calculator, and ask yourself some questions:

1. How much might you save by waiting for a conforming or FHA loan rather than a jumbo one?
2. Do you need to move urgently? Not everyone has the luxury of waiting a couple of extra months
3. How quickly are home prices rising where you wish to buy? If very quickly, that could eat up your potential savings

Depending on your answers to those, you may or may not benefit from waiting for a conventional or FHA loan in 2022.