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What an Increase in Conforming Loan Limits Means for Borrowers Feature Image
Posted on November 10, 2022 6 minute read

What an Increase in Conforming Loan Limits Means for Borrowers

What's in this article?

What is a conforming loan?
Why increasing conforming loan limits matter
Why are limits increasing?
What does this mean for rates on higher mortgages?
Non-conforming loan limits 2022
Homefinity’s Cash Assurance and Edge Pre-Approval program
Get started with Homefinity today

Most zip codes in the United States saw the 2022 conforming loan limit rise. 

This made it easier for prospective buyers to realize homeownership amid rising interest rates.

The Federal Housing Finance Agency (FHFA) raised the 2022 conforming loan limits to $647,200—18% higher than 2021’s conforming loan limit and the biggest loan limit on record.

The quick upshot? Anyone buying a home in a high-priced real estate market just caught a break. 

What is a conforming loan?

A conforming loan is a name given to any mortgage or home loan that meets the terms established by Fannie Mae, Freddie Mac, and the FHFA. 

In other words, conforming loans are mortgages for less than the conforming loan limit—$647,200 for 2022—and follow Fannie Mae and Freddie Mac guidelines.

Fannie Mae and Freddie Mac are government-sponsored companies regulated by the FHFA. Fannie Mae and Freddie Mac buy eligible mortgages from mortgage lenders, converting them into investments.

Because Fannie Mae and Freddie Mac guarantee conforming loans for the lenders, they are typically easier to qualify for—and less expensive—than jumbo loans.

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Why increasing conforming loan limits matter

A higher conforming loan limit allows potential homebuyers to sidestep many additional financial hurdles accompanying home loans for more than $647,200. 

Home prices can quickly reach that point for buyers in high-priced markets. 

Borrowers run into the following challenges if they have to get a non-conforming loan: 

  • Increased financial scrutiny 
  • Higher interest rates 
  • Cash reserve requirements 
  • Closing costs 
  • Stricter eligibility requirements

Why are limits increasing?

Buying a home in high-price-tag markets, like Hawai’i and California, can mean spending more than the conforming loan limits. In an effort to help homebuyers in these areas, the FHFA creates specific, higher loan limits for home loans.

In these designated high-cost real estate markets, the FHFA raised the maximum loan amount to $970,800. 

To see if your desired area falls under the special higher FHFA designation, look up high balance loan limits for 2022 by county on the FHFA website’s interactive Conforming Loan Limit Values Map.

Anyone looking at homes for a while knows that housing prices have skyrocketed nationwide in recent years. 

According to the FHFA’s Housing Price Index, home prices jumped 18.5% from the end of 2020 to the end of 2021, with some markets having seen even more significant increases. 

Under the terms of the Housing and Economic Recovery Act (HERA), the FHFA has to keep conforming loan limits aligned with actual market prices. The result is increasing conforming loan limits.

What does this mean for rates on higher mortgages?

Increasing conforming loan limits offers an opportunity to save money for potential homeowners looking to buy or refinance in a high-priced area. 

Conforming loans have lower interest rates than loans above the FHFA limits.

Non-conforming loan limits 2022

Non-conforming loans are often referred to as jumbo loans. 

Jumbo loans are mortgages for amounts above the conforming loan limit. They have higher interest rates, are more expensive, and have more challenging eligibility requirements than conforming loans. 

The stricter requirements can leave many homeowners cash-strapped or “house poor.” 

Conforming loans typically offer lower down payments of around 3%, whereas jumbo loans often require 20%. Additional Jumbo loan requirements can include minimum credit scores in the 700s, cash reserves, a maximum debt-to-income (DTI) of 45%, and more.

Some jumbo loan lenders require larger down payments and lower DTI.

Because FHFA guidelines do not restrict jumbo loans, their standard loan limits don’t apply. Instead, mortgage lenders commonly set their own loan limits. 

Homefinity’s Cash Assurance and Edge Pre-Approval program

No matter what the market is doing, mortgage pre-approval can help you prepare to buy and set a budget. It can also set your offer apart from other interested buyers on the market. 

That’s why getting pre-approved should be the first step of your loan process, regardless of how much you need or where you’re buying. 

As more homebuyers apply for pre-approval, the advantages begin to shrink if all offers are accompanied by a pre-approval letter. 

That’s where the Homefinity Cash Assurance and Edge Pre-Approval Program* can help you stand out from offers with just traditional pre-approval. 

The Homefinity Cash Assurance and Edge Pre-Approval Program combines the security of a preapproval letter and the flexibility of a cash offer. 

How it works:

  • You’re preapproved for a specific loan amount
  • Sellers receive a cash guarantee on your behalf
  • Because your offer is guaranteed in cash, you compete with other cash buyers

And as a borrower, there are no additional fees to participate in the Homefinity Cash Assurance and Edge Pre-Approval Program.

If you cannot close the deal on a home due to a financing reason, Homefinity will buy the seller’s home.

If the program guarantee is triggered, but the seller decides they don’t want Homefinity to buy their home, they can choose to terminate the contract and walk away from the deal with $10,000—paid by Homefinity.

How to get Homefinity Cash Assurance

A cash assurance starts with a Homefinity Edge Pre-Approval

Borrowers must secure financing with either a VA home loan or a conventional mortgage. 

Only single-family homes are eligible for Homefinity Cash Assurance; retail or investment properties are not eligible.

If you’re purchasing a home in an area requiring a larger mortgage, the higher conforming loan limits for 2022 could be the right solution for your situation.

Start by figuring out your mortgage budget—a mortgage affordability calculator is an excellent tool for this. 

Look at the conforming loan limits in 2022 by zip code or county to see if your dream home qualifies for a conforming home loan. 

Get started with Homefinity today

Easier eligibility, no cash reserve requirements, and conforming loan limits put homeownership within reach—without the need for a jumbo loan.

Get started on your mortgage pre-approval today and lock in a competitive mortgage interest rate. 

Reach out to the licensed loan officers at Homefinity, and let us put our years of experience to work for you. 

It could easily be the best way to get the keys to your dream home.

 *Homefinity Edge Pre-Approval is based on a full review of the borrower’s creditworthiness and is contingent upon there being no material changes in the borrower’s financial condition or creditworthiness at the time of final loan approval. Final loan approval is subject to the following conditions: (1) borrower has identified a suitable property, and a valid appraisal supports the proposed loan amount; (2) a valid title insurance binder has been issued; and (3) borrower selects a mortgage program and locks in an interest rate that will support the pre-approved monthly payment amount. Loan must close before the expiration date provided in the pre-approval. Offer not available on FHA, USDA, bond, or DPA programs. Sale of home proceeds contingency not allowed. Gifts not deposited are not allowed. Please note that submitting verifying documentation is not a requirement to receive an estimate of closing costs associated with a mortgage loan.

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