Conforming Loan Limits Soar for 2022

The FHFA announced the new Conforming Loan Limits for Fannie Mae and Freddie Mac. 

After determining that home prices are up by more than 18% on average across the nation, they raised conforming loan limits by the same percentage — a dollar increase of almost $100,000 for the standard one-unit home. Multi-unit properties got a similar increase.  

Graph of loan limits

Most counties in the Bay Area are deemed high-cost areas and granted the maximum 1-unit loan limit, which is $970,800, up from $822,375 in 2021.  The lower limit was increased to $647,200 from $548,250.   FHA loan limits rose similarly, with the same ceiling at $970,800, but a lower floor at $420,680.  

Conforming loan limits for 2022 by county

The below map shows the limits by county; you can interact with this map on the FHFA’s website.

Map showing loan limits throughout America


Intended and unintended consequences of higher loan limits

Imagine if these loan limits had not been increased; it would have prevented access to affordable mortgages for millions of homebuyers just trying to buy an average home in their neighborhood.  On the other hand, jumbo mortgages, those above conforming loan limits, are currently priced about 50bps lower than conforming mortgages for high quality borrowers (think 700’s FICO and low debt to income); so for example, the high quality borrower going for a $900,000 mortgage in 2022 could end up paying 50bps more than in 2021; they are better off trying to stretch to a $971,000 mortgage, putting them into jumbo territory where the rates could be 50bps lower.  

Some people worry that increasing limits in this manner perpetuates a cycle of home price increases that make homes unaffordable for future generations.  However, a recent analysis by Black Knight suggests that average monthly mortgage payments are quite affordable relative to history.  The monthly out-of-pocket mortgage payment required to buy an average-priced home was $1,346 in October 2021, assuming a 20 percent down, 30-year fixed-rate mortgage. This is an increase of nearly 24% ($260) since the start of the year, but is still below the 2006 peak of $1,372 when mortgage rates were much higher.  

It now takes 22.4% of the median household income to make the monthly mortgage payment on a median-priced home, up from 18.1% at the beginning of the year. This is the largest share since late 2018 when 30-year interest rates were near 5.0% but is still far lower than the 34% payment-to-income ratio in 2006.  This increase to 22.4% from 18.1% would typically help cool home price gains, but with continued low inventory levels, this relationship may not hold as well as when supplies were higher and buyers had more bargaining power.  

READ NEXT: 10 Statistics About Every State’s Real Estate Market

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