FHFA sets higher borrowing limits for mortgage loans in 2022

The Federal Housing Finance Agency (FHFA) raised its conforming loan limits significantly across the U.S., even allowing for loans of up to nearly $1 million in some parts of the country, the agency announced Tuesday.

In most areas of the U.S., the new limit for conforming loans in 2022 — or mortgage loans backed by Fannie Mae or Freddie Mac — will be $647,200 for single-family homes, an increase of $98,950. This is up from the limit of $548,250 in 2021. 

However, in high-cost areas where the local median home values surpass the conforming loan limit by 115%, the limit will differ. There, it will be raised to 150% of the conforming loan limit, according to the Housing and Economic Recovery Act (HERA). This brings the new 2022 mortgage loan limit to $970,800 for high-cost areas. Due to special statutory provisions, Alaska, Hawaii, Guam and the U.S. Virgin Islands will also have the same loan limits as high-cost areas. 

These new limits will allow homeowners to get larger loan amounts with lower mortgage rates since rates are typically higher for loans not backed by the government. Homeowners looking to save money can do so by lowering their interest rates through a mortgage refinance. Visit Credible to find your personalized rate and see how much you could save.

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Rising home prices push limits higher

Each year, the FHFA uses its House Price Index (HPI) report to determine how much to raise conforming loan limits. This year, the agency found that home prices rose 18.05% annually from the third quarter of 2020 to the third quarter of 2021, according to its expanded-data HPI.

This led to an unprecedented increase in conforming loan limits. The FHFA increased the limits by 7.5% for 2021 and had previously only raised the ceiling by a total of $131,250 for all years combined since 2017, which was when the FHFA raised limits for the first time since the Great Recession.

"Earlier today, FHFA announced the Conforming Loan Limits for 2022," FHFA Acting Director Sandra Thompson said on Tuesday. "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% of U.S. counties will be subject to the new baseline limit of $647,200, approximately 100 counties will have conforming loan limits approaching $1 million. 

"FHFA is actively evaluating the relationship between house price growth and conforming loan limits, particularly as they relate to creating affordable and sustainable homeownership opportunities across all communities," Thompson said.

If you currently have a jumbo loan that you want move into a conventional mortgage loan, or your home price has appreciated and is now covered under the new limits, you could consider refinancing to save on your monthly payment. Visit Credible to compare multiple mortgage lenders at once and choose the one that is the best fit for you.

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Do higher loan limits reduce mortgage rates?

With rising limits for loans backed by government-controlled Fannie Mae and Freddie Mac — and therefore the U.S. taxpayer as well — some have begun to question the risk that backing mortgages close to $1 million could put on taxpayers. 

"The stark reality of a loan limit approaching $1 million in some areas highlights the need for Congress and the Administration to evaluate the level of support taxpayers should provide to the mortgage market," the Housing Policy Council (HPC) said in a statement. "Since Fannie Mae and Freddie Mac were placed into conservatorships thirteen years ago, taxpayer support for the mortgage market has increased significantly. Home price appreciation has facilitated this expansion, permitting Fannie Mae and Freddie Mac to serve a portion of the market traditionally covered by private capital."

HPC also stated that raising conforming loan limits brings down mortgage rates for homebuyers at higher price points. However, the group said it could be worsening housing affordability as well.

"With house prices rising faster than incomes, affordability continues to be a problem for many homebuyers," HPC stated. "In the face of these trends, this latest increase in loan limits permits more mortgages made to higher income households to be eligible for sale to the GSEs. Taxpayer backing of mortgage securities results in slightly lower mortgage rates which, in turn, encourages people to buy more expensive homes. Ultimately, such backing feeds the runup in house prices, exacerbating the affordability challenges we face in today’s supply-constrained marketplace."

If you are interested in taking advantage of lower mortgage rates for a conventional loan, contact Credible to speak to home loan expert and get all of your questions answered.

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