Double-digit home price increases are great news for homeowners who have more equity as 2021 comes to a close. While buyers complain when prices spike, a side impact of higher prices is that they mean the limits for conforming mortgages and for FHA loans will also be higher. Borrowers, therefore, can avoid needing a jumbo loan to buy property.
Loan limits for conforming loans acquired by Fannie Mae and Freddie Mac, which are reset annually, will increase next year. FHA loan limits, which have yet to be announced, will also likely rise because of higher prices. VA loans can be approved for any amount for qualified borrowers since loan limits were eliminated for that program as of Jan. 1, 2020.
Across most housing markets, the new conforming loan limit will be $647,200 in 2022, an increase of $98,950 compared to 2021’s limit of $548,250. Borrowers who need to finance a larger sum for a home purchase will need to apply for a jumbo loan, which often has stricter guidelines for borrowers, larger down payment requirements and sometimes higher interest rates because of the risk associated with a bigger loan.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is required by the Housing and Economic Recovery Act to adjust the loan limits according to changes in home prices. The FHFA’s House Price Index showed that home prices increased an average of 18.05% between the third quarters of 2020 and 2021, so the conforming loan limit will increase by that same percentage.
The conforming loan limit will be higher in all but four counties in the United States in 2022.
Conforming loan limits are higher in about 100 expensive housing markets, including the Seattle-Bellevue area and the Portland-Vancouver, Wash., area. The FHFA considers markets as high-cost areas when 115% of the local median home value exceeds the standard conforming loan limit. In 2022, the new loan limit for properties in those high-cost markets will be $970,800, which is 150% of the standard $647,200 loan limit.
The limits apply to all loans that will close in 2022.