Rising Mortgage Limits Help Home Buyers
For the past eighteen months many have started to reevaluate what it means to be a homeowner. Renters decided that it is time to find a space of their own. Instead of doling out money each month to landlords they wanted to start investing in themselves. Existing homeowners have started to reevaluate what they want in home. Kids started attending school from home, workers couldn’t go to an office, and entertainment options were shut down. This left homeowners looking for bigger homes with bigger backyards that could meet the demands of the pandemic. Additionally, record low mortgage rates helped first time home buyers and existing homeowners buy the houses of their dreams at an affordable mortgage. Unfortunately, excess demand and record low inventory shot prices to all time highs. Rising prices complicated qualifying for some mortgages because of loan limits. Thankfully, mortgage limits are rising and home buyers can rejoice.
FHFA Raises Mortgage Limits for Home Buyers
Recently, the FHFA raised their mortgage limits, also known as the Conforming Loan Limit, for 2022. The FHFA is the Federal Housing Finance Agency. They were established in 2008 by the Housing and Economic Recovery Act of 2008. Their job is to supervise and regulate the Federal Home Loan Bank System, as well as Fannie Mae and Freddie Mac. On top of that, they are also responsible for Federal Housing Administration programs, which includes FHA loans for first time home buyers.
What is a Conforming Loan Limit?
According to Investopedia, conforming loans are those that “meet the guidelines to be purchased by government-sponsored enterprises Fannie Mae and Freddie Mac”. Conforming loans have set limits for the size of mortgage that can be financed by a home buyer. Conforming loan limits are not uniform across the nation. Markets where home prices are high have higher limits than other places. In the event that you need a home loan that exceeds conforming loan limits, then you would need a nonconforming loan. The most common type of nonconforming loan are Jumbo loans. Typically, the underwriting requirements for Jumbo loans are more restrictive than conforming loans. Mortgage rates are not as favorable and home buyers need larger down payments. Conforming loans have more favorable terms for home buyers because they are less risky to lenders since Fannie Mae and Freddie Mac can buy them.
Massive Increasing to Conforming Loan Limits
The FHFA’s recent decision to raise conforming loan limits is both expected and unprecedented all at the same time. Typically, conforming loan limits are raised each year. However, this usually happens in small amounts to keep up with the cost of living and appreciation. The limit increase for 2022 is much larger than ever before. According to the FHFA, the new baseline limit for conforming loans in 2022 will be $647,200. This is a marked increase from last year. Additionally, 100 counties in high value markets will see their conforming loan limits go up to $1 million for a conforming mortgage.
These rising limits will be a boon for home buyers. Home buyers can now take advantage of a conforming home loan for high-priced houses. This means being able to buy a high-priced home without having to pay exorbitant down payments or higher mortgage rates. This is particularly good news for first time home buyers. With rising home prices, there was a risk that first time home buyers could be priced out of starter homes. These mortgage limit raises mean that they can still get FHA loans or even conventional loans in spite of market conditions.
Final Thoughts
Home prices are rising, but there are still plenty of opportunities for home buyers, including first time home buyers. Raised limits on conforming loan limits demonstrate that lenders and governments will make adjustments to keep the real estate market red hot. Mortgage rates are still incredibly low and it is a great time to get into the home of your dreams. If you are interested in making your dreams a reality, contact us. The team at Peoples Choice Mortgage is here to help you with everything you need.
