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Americans have reevaluated what the word home means since the pandemic began. Renters have begun to appreciate the many benefits of homeownership, including financial stability and the feelings of security that come with owning a home. Moreover, some current homeowners have decided that their house no longer meets their needs, so they moved into new houses with more space inside and outside, which often included a home office for remote working.

Some purchasers have not been able to fulfill their dream of purchasing a home. These are two challenges they face:

  • Being able to save for a down payment
  • Qualification for a mortgage under current lending standards

For many purchasers, these challenges were somewhat mitigated during the past week. As of 2022, the FHFA (which handles mortgages for Freddie Mac, Fannie Mae, and the Federal Housing Administration) will raise its loan limits. Conforming Loan Limit is the term used to describe the maximum amount of loans they will consider.

How Does a Conforming Loan Differ from a Non-Conforming Loan?

According to a recent post on Investopedia, the difference is:

“Conforming loans are the only loans that meet the requirements to be acquired by Fannie Mae and Freddie Mac. Jumbo loans, which exceed the conforming limit, are the most common type of non-conforming loan.”

How does it affect me as a home buyer?

Forbes published an article this year explaining the benefits and reasons behind conforming loans:

“Since lenders can’t sell non-conforming loans to Fannie Mae or Freddie Mac to free up their cash, they’re a bit riskier for the lender. This is especially true for jumbo loans, which aren’t backed by any government guarantees. If you default on a jumbo loan, it’s a huge blow to the lender.

Thus, lenders generally charge higher interest rates to compensate, and they can have even more requirements. For example, lenders who give out jumbo loans often require that you make a down payment of at least 20% and show that you have at least six months’ worth of cash in reserve, if not more.”

In what ways did things change last week?

According to the FHFA, the conforming loan limit for 2022 has been significantly increased. Sandra L. Thompson, FHFA Acting Director, states in the press release:

“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. countie​s will be subject to the new baseline limit of $647,200, approximately 100 counties will have conforming loan limits approaching $1 million.”

With less down payment and easier lending requirements, more homes now qualify for a conventional loan, eliminating the two obstacles that held buyers back over the last year.

In addition, the Federal Housing Administration (FHA) has raised its conforming loan limits for 2022. For many prospective homeowners, this could make homeownership more accessible. According to the Forbes article:

“FHA loans can be very beneficial if you don’t have as much savings, or if your credit score could use some work.”

Bottom Line

You may find it easier (with fewer qualification requirements) and cheaper (with a lower mortgage rate) to purchase your first home or next property. Please contact us to learn how these changes can affect you.

  1. To get more information on the new FHFA Conforming Loan Limits, click here.
  2. To get more information on the new FHA Conforming Loan Limits, click here.

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