Compliant loan limits for upcoming 2022 (and likely increasing)
- Compliant loan limits for 2022 are expected to be announced later this month.
- We expect loan limits to increase due to strong house price growth.
- They have been increasing for several years in a row now, for the same reason.
- Federal housing officials will announce revisions near Thanksgiving.
- The baseline for most counties could reach $ 625,000 for next year.
There is a very good chance that compliant loan limits will increase in 2022. Home prices in many US cities have risen to record highs over the past year. Due to this trend, we expect the Federal Housing Finance Agency to increase the 2022 compliant loan limits from their current level.
We will know more soon enough. Housing officials typically announce these revisions a few days before Thanksgiving each year (to be applied within the following year). And Thanksgiving is just over a week away.
Higher compliant loan limits in 2022 expected
A “compliant” loan is a loan that meets the purchasing requirements used by Fannie Mae and Freddie Mac. These are the two government-supervised companies that buy mortgages from lenders and sell them to investors.
The main requirement for a compliant loan has to do with its size (ie the amount of money borrowed). There is a limit to the amount you can borrow when using a compliant mortgage product. The Federal Housing Finance Agency (FHFA) sets these size restrictions, commonly known as “loan limits”.
These ceilings may vary by country, as they are partly based on median house prices. This year, the benchmark loan limit for most counties in the United States was set at $ 548,250. More expensive areas like San Francisco and New York currently have compliant loan limits of up to $ 822,375. Both of these thresholds will likely increase in 2022.
If you borrow above the limit for your county is called a “jumbo” mortgage. Generally speaking, jumbo loans come with more stringent requirements for credit scores, down payments and (sometimes) cash reserves.
Most borrowers in the United States stay in the compliance range when they use a mortgage to buy a home. The official loan limits are therefore quite large from a homebuyer’s perspective.
Look for the official announcement next week
Each year, federal housing officials review compliant loan limits based on changes in home prices over the past year. When prices increase dramatically, the FHFA usually increases the maximum compliant loan size to keep pace.
This is what we expect to see this year. Given the substantial growth in home prices over the past 12 months or so, we will most likely see higher compliant loan limits for 2022.
In recent years, FHFA officials have announced revisions during Thanksgiving week. The current limits were announced on November 24, 2020, two days before last Thanksgiving. The FHFA will likely follow this “tradition” and publish the (possibly) revised compliant loan limits for 2022 sometime next week.
The agency has signaled it may increase the benchmark limit for most US counties to $ 625,000 in 2022. But that’s not official yet. Despite this, some mortgage lenders now offer loans up to this amount. Most will probably wait after the announcement, before adjusting their loan procedures.
We will publish a follow-up to this report if and when these changes occur.
Major home price growth recorded in 2021
According to real estate data company Zillow, the median home value in the United States has increased by more than 18% in the past year. This is far above what is considered a “normal” assessment, from a historical point of view.
But then again, the housing market has been operating outside its normal range for some time now.
Cities with highly competitive real estate markets have seen even larger price increases in 2021. For example, home values in Austin and Boise have increased by more than 40% in the past 12 months, according to Zillow.
Due to this trend, compliant loan limits for 2022 will likely increase as well. This means that borrowers would have a greater cash flow to work with when using a “regular” conventional mortgage.
The Federal Housing Administration, which manages the popular FHA loan program, has its own set of limits. Sometimes their FHA caps line up with the compliant limits – other times they’re different. The FHA will likely announce any changes to their program during the first week of December, as they have done in previous years.
Meanwhile, housing affordability continues to decline
Having higher compliant loan limits in 2022 could benefit many borrowers. But that will not compensate for a bigger problem in the housing market, namely the lack of affordable housing.
Over the past two years, home prices in the United States have risen much faster than incomes – on average. In fact, he hasn’t even been close. This has led to a further decline in affordability nationwide, and especially in hot housing markets.
According to a September 2021 Report from ATTOM Data Solutions:
“… Median-priced single-family homes are less affordable in the third quarter compared to historical averages in 75 percent of counties nationwide with enough data to analyze. That rose from 56% of counties in the third quarter of 2020, to the highest level in 13 years, as house prices rose faster than wages in much of the country. “
Home values in the United States are expected to continue to climb in 2022, but perhaps at a slower pace. Forecasters expect mortgage rates to rise in the coming months as well. These trends could further erode housing affordability.