For the sixth year in a row, the Federal Housing Finance Authority (FHFA) raised the conforming loan limits. Good news for homebuyers because 2021 brought a significant increase in average home prices across the country. 

NEW CONFORMING LOAN LIMITS FOR 2022

FHFA annually publishes the FHFA House Price Index at the end of the third quarter. The report tracks home values across the US for the previous four quarters. And the 2021 Report showed an 18.05% increase, on average, in home prices across the country.

That percentage increase in home prices directly leads to the 2022 Conforming Loan Limits (CLL) rising by 18%. This increase is the largest in a single year, with the new baseline CLL now $647,200 for one-unit properties in the majority of counties across the country. 

The CLL adjusts higher, automatically, for counties with higher average home prices. In those high-cost counties, the new CLL for one-unit properties is now $970,800. Several counties fall between the baseline CLL of $647,200 and the high-cost limit of $970,800. 

Find the 2022 Conforming Loan Limit for your county here. 

An overview of 2022 conforming loan limits in the Sacramento region and nearby counties is $675,050 for Placer, Sacramento, El Dorado, and Yolo counties. The 2022 CLL is $647,200 for Nevada, San Joaquin, and Butte counties.

EVERYTHING ABOUT CONFORMING LOAN LIMITS

1. WHAT ARE CONFORMING LOANS?

Conforming loans are mortgages that comply with the underwriting guidelines of the agencies Fannie May and Freddie Mac. These include minimum credit score, income, down payment percentage and sources, and debt-to-income ratios. And the loan amounts must be at or below the current limits set by FHFA.

The federal government doesn’t back Conforming loans (like they do for FHA, VA, and USDA loans) even though Congress created the agencies known as Fannie Mae and Freddie Mac. But these agencies buy loans that fit their lending guidelines from banks and mortgage lenders. The FHFA states this provides liquidity, stability, and affordability to the mortgage market.

HOW ARE CONFORMING LOAN LIMITS DETERMINED?

In 2008, the Housing and Economic Recovery Act (HERA) was passed by Congress. HERA included creating FHFA and setting the baseline CLL at $417,00 nationwide. It also required the CLL to adjust annually based on the change in average home prices - as they increased, the CLL would need to increase.

HERA also makes loan limits that are tied to local-area median home values. So, in counties where 115% of the local median home value exceeds the baseline loan limit, they set the CLL at 115% of the median home value. The cap for the most high-cost areas is 50% above the baseline, which is why some counties have CLL’s at 150% of the baseline loan limits.

BASELINE CONFORMING LOAN LIMITS BASED ON # OF UNITS

Here are the 2022 loan limits, per the number of units in the property, for low, medium, and high-cost areas:

WHAT ARE THE 2022 LOAN LIMITS FOR FHA LOANS

The VA made a significant change in 2020, eliminating loan limits on loans over $144,000. This applies to veterans, service members, and survivors who have full entitlement. But FHA loans are entirely different.

HUD announced the 2022 FHA loan limits when the FHFA announced the Conforming Loan Limits. The FHA limits are based on the average cost of housing in an area/county, giving different limits for low-cost, medium-cost, and high-cost areas.

The floor for the new FHA limits for 2022 is $420,680, up from $356,360 in 2021, while the ceiling in high-cost areas is $970,800. Find out which areas are between the low end and the ceiling here and those at the ceiling here.

Even though the baseline loan limit for FHA loans is less than for Conforming loans, HUD is still increasing the FHA limits to stay aligned with the increase in average home prices. Here is a breakdown of the limits based on low-cost and high-cost areas by the number of units. 

Note that FHA loans are strictly owner-occupied. For 2-4 unit properties, one unit must be occupied by the borrower/owner. The remaining units can be rentals. 

THE DIFFERENCE BETWEEN CONVENTIONAL CONFORMING LOANS AND FHA

Both Conforming and FHA loans have minimal down payment program options (as low as 3% for conforming conventional, and 3.5% for FHA.) One big difference between these loan types is mortgage insurance. FHA loans require mortgage insurance regardless of how much down payment is involved.

Conventional conforming loans do not require mortgage insurance if your down payment is 20% or more of the purchase price. You can also avoid paying mortgage insurance by getting a first mortgage for 80% of the purchase price combined with a second mortgage. If your down payment plus the second mortgage equals 20% of the purchase price - no mortgage insurance is required.

FHA loans offer many benefits, including lower credit scores and easier qualifying guidelines. The trade-off is you must carry expensive mortgage insurance, with a portion due at the time of funding and a monthly premium. The upfront portion is generally added to the loan amount and financed.

With Conventional Conforming loans, mortgage insurance can be removed, without refinancing the loan, once the equity in your property reaches 78%. But, with FHA loans, once you have at least 20% in equity, you will need to refinance your mortgage with a conventional loan to remove the mortgage insurance requirement. 

THE BEST WAY TO TAKE ADVANTAGE OF THE 2022 LOAN LIMITS

Picking the best loan option is a very personal decision. Step one is meeting with a Point Equity loan officer, who will go over your details and answer any questions and concerns. Once you have the best options for your situation, you can take advantage of these higher loan limits in 2022.