EXPLORING THE BENEFITS OF INCREASED CONFORMING LOAN LIMITS WITH FIRST ADVANTAGE MORTGAGE
It’s no secret that home prices have surged this year, with Forbes reporting an estimated 14% increase in the average price of homes in 2021 compared to 2020. While this might raise concerns for homebuyers, there’s positive news in the form of the Federal Housing Finance Agency’s (FHFA) announcement of new conforming loan limits—a record-breaking development.
As of November 2021, the 2022 conforming loan limit for single-family homes in most markets is $625,000. This marks a substantial rise of $76,750 from the 2021 limit of $548,250, representing the most significant dollar amount increase in a conforming loan limit since 1970.
WHAT ARE CONFORMING LOAN LIMITS?
Government-sponsored enterprises (GSEs) are federally-backed mortgage companies supporting the home loan market. Instead of originating loans, GSEs acquire mortgages from lenders and repackage them as mortgage-backed securities. To ensure stability, GSEs establish standards, including credit scores, debt-to-income ratios, down payment requirements, and loan limits.
While the baseline loan limit in 2022 is $625,000 in most areas, high-cost areas may see limits up to $937,500. Your location plays a role in determining the specific limit, and higher loan amounts generally translate to higher payments.
HOW ARE CONFORMING LOAN LIMITS DETERMINED?
The FHFA annually studies average home prices across the country, adjusting the conventional loan limit based on their findings. The House Price Index report guides these adjustments. The significant increase in the 2021 average home price, from $389,400 to $408,800, directly influences the substantial raise in the loan limit for 2022.
It’s noteworthy that the loan limit doesn’t automatically increase every year. It’s tied to the current housing market, reflecting changes in house prices. Historical data, such as the post-2009 housing crash, reveals instances where the limit remained stagnant for a decade due to market conditions.
WHAT IS A JUMBO LOAN?
When homebuyers seek amounts exceeding local conventional loan limits, they turn to jumbo loans. While these loans accommodate larger purchases, they come with challenges. Jumbo loans aren’t backed by GSEs, making qualification more demanding with higher credit score and down payment requirements.
WHY IS AN INCREASE IN CONFORMING LOAN LIMITS BENEFICIAL?
The increase in conforming loan limits is advantageous for homebuyers. By expanding the limit, more buyers can secure conforming loans instead of jumbo loans, avoiding hefty down payments and stringent credit score requirements.
Jumbo loans often mandate a 20% minimum down payment, while conforming loans may require as little as 3%. Qualifying for a jumbo loan typically demands a credit score in the 700s and a lower debt-to-income ratio. Conventional loans offer more lenient qualifications. Moreover, lenders generally prefer working with conforming loans due to their GSE backing, ensuring a safer investment.
Increasing conforming loan limits aligns with the current housing market, enabling more homeowners to pursue their dream homes without the complexities of jumbo loans.
QUALIFICATIONS FOR NEW CONFORMING LOAN LIMITS
For those considering these new conforming loan limits, certain qualifications apply:
- Limits are applicable to GSE purchase or refinance transactions.
- The property can be a one-unit, owner-occupied house, a second home, or an investment property.
- New limits apply to new submissions only, and retroactive access is not available unless opting for a refinance.
Conventional loans are aptly named for their conventional nature, making them accessible to most homebuyers.
CHOOSE FIRST ADVANTAGE MORTGAGE FOR YOUR CONFORMING LOAN
While these loans are conventional, First Advantage Mortgage is anything but ordinary. Your dedicated Mortgage Coach is here to help, whether you seek clarity on conforming loan limits or are ready to apply. Harnessing technology and expertise, we streamline the loan process swiftly. With the First Advantage Mortgage Closing Guarantee, your satisfaction is assured.
We’re now offering conventional loans of up to $625,000. Contact First Advantage Mortgage today to embark on your homeownership journey!
