The new conforming loan limits were just adjusted for 2022. Here’s what you need to know.

First and foremost, let's formally visit what a conforming loan is. Simply put, a conforming loan is a loan that has to meet specific dollar limits that are predetermined by the Federal Housing Finance Agency. If you’re financing your home via a Fannie Mae or Freddie Mac mortgage, the conforming loan limit is the maximum amount of financing you can receive to purchase a home. 

The limit on a conforming loan is also known as the conforming loan limits, or CLL. These conforming loan limits are adjusted yearly. Additionally, that limit may adjust depending on where you are purchasing the home. For example, the conforming loan limit in Los Angeles is higher than the conforming loan limit in Raleigh North Carolina considering the drastically higher cost of living. 

In 2022, the conforming loan limit is set at $647,200. However, in higher cost of living areas, the ceiling reaches $970,800.

• The federal government insures loans issued through the FHA, which must meet the conforming loan limits. This is beneficial as it makes homeownership within reach for millions of Americans. 
• Conforming loans can be easily sold on the secondary mortgage market, which allows financing institutions to issue more mortgages on the primary mortgage market.
  

It’s no secret, throughout 2020 and 2021, home prices have skyrocketed! There are numerous factors that caused the surge in real estate prices, but two of the main reasons include:

1. The federal government reduced interest rates, which caused more of an incentive for people to borrow money and purchase a home
2. Due to the COVID-19 pandemic, many people decided to move out of the city and relocate to the suburbs. This surge in demand caused there to be a shortage of supply, which in return boosted home prices.
   
   

The Federal Housing Finance Agency had to respond to the increase in home prices, and had to raise the conforming loan limits. In 2021, the conforming loan limit for one unit properties was $548,250. For 2022, that limit increased over 16%! 

The single greatest benefit of a higher conforming loan limit is the fact that you can secure more financing for your home! With home prices on the rise, you may not have been able to find a home in your area with the previous conforming loan limit.

There are times where the conforming loan limit isn’t enough to purchase the home you want. There are a few ways to combat this:

• You’ll need to put more money down. The more money you put down, the less you need to finance. There is a possibility that if your down payment is big enough, you can finance the rest of the property via an FHA conforming loan.
  
  
• You can apply for a conventional loan that is not conforming. A conventional loan issued by a private lender may have its own set of rules, or underwriting guidelines, the borrower must meet. Although many conventional loans may follow the guidelines set forth by the Federal Housing Finance Agency, there are still plenty of private lenders that do not follow the same guidelines. Afterall, that’s one of the greatest benefits of working with a private mortgage lender!
  
  
• You can also apply for a jumbo loan. As the name suggests, a jumbo loan is used to purchase properties that are expensive. Without question, you’ll need to have fantastic credit, a low debt to income ratio, and earn a lot of money to qualify for a jumbo loan. But these loans do exist, and may help finance your next home. 
  

The real estate market is rapidly changing, and we’re living through some truly unprecedented times. With the rapid rise of home prices, the conforming loan limits for 2022 have just increased. This increase is in your favor, as more expensive homes can still be purchased via FHA mortgages. If you’re looking for a home in 2022, it's important you are familiar with all the recent changes, and the various mortgage options available today. Call/text/email me anytime. I’m more than happy to answer any of your lending questions!