In 2022, credit limits should be $ 1 million
Every year the Federal Housing Finance Agency (FHFA) increases the credit limits for compliant mortgages. The next announcement is due before November 30th.
It is very likely that credit limits in areas with high home prices will rise to nearly $ 1 million in 2022. And even in places where home prices are lower, we expect those limits to rise to around $ 650,000.
Higher credit limits are good news for both home buyers and homeowners. This step is intended to help keep home ownership affordable even where housing values have skyrocketed in recent years.
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How high will compliant credit limits go?
Compliant credit limits vary by location. They are higher in expensive subways and a little lower in cheaper areas.
For 2022, the corresponding credit limits for a detached house are expected to be:
$ 650,000 in most areas Almost $ 1 million in high-priced areas like NYC and Los Angeles
For multi-family houses with two to four units, the credit limits will be even higher. So if you are planning to buy an apartment building or an investment property, you have more options in 2022 as well.
Why are Fannie Mae and Freddie Mac's credit limits soaring? Is it because the federal government had a sudden rush of generosity?
Not quite. The agency's supervisory authority, the FHFA, has a legal obligation under the Housing and Economic Promotion Act of 2008 (HERA) change these limits each year to keep pace with rising home prices across the country.
And property prices skyrocketed in 2020 and 2021.
In fact, at the time of this writing, the latest Case-Shiller national house price index says house prices are up 19.8% year over year. And that was a record.
So the huge increase in credit limits is a direct result of high property price inflation.
What the new credit limits mean for home buyers
Corresponding credit limits for 2021 are $ 548,250 in most areas and $ 822,375 in the expensive housing markets.
Those who want to take out more loans currently have to turn to a jumbo mortgage.
Well, jumbo mortgages are fine if that's all that is available to you. But it can be difficult to qualify for one. And their mortgage rates are often higher than those on compliant mortgages backed by Fannie Mae or Freddie Mac.
Benefits of higher compliant credit limits
Higher credit limits mean fewer borrowers will need to take out jumbo loans in 2022. This could open up more expensive housing markets to a wider range of buyers.
In the past, jumbo loans often required a down payment of 20% or 30% of the sale price and a credit score of 740. And many lenders still have these types of requirements, typically offering competitive rates to these attractive borrowers.
Nowadays it may be possible to get jumbo finance at only 5% or 10% and a credit score of only 680. However, you will likely have to pay a significantly higher mortgage rate than someone with good credit and 20% less.
This is where the new compliant credit limits can help.
You could soon qualify for that higher priced home with an appropriate loan. And these are available at just 3% off, a credit score of 620, and often an attractive mortgage rate. (Don't forget, however, that you may have to pay for mortgage insurance for a while.)
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What about the FHA limits?
The FHA loan limits will be changed on the same basis as those for Fannie and Freddie. So they're likely to increase by the same percentage in 2022.
However, they are calculated a little differently. Therefore, the standard FHA loan limit in budget areas is lower than that on compliant mortgages.
In some places, the credit limit for FHA loans was only $ 356,362 in 2021. But the cap in areas with very high average home prices was the same as for compliant mortgages: $ 822,375.
If, as expected, the FHA loan limits increase by the same percentage as those for conventional loans, we could 2022 FHA loans for a detached house as high as:
$ 422,000 in most areasAlmost $ 1 million in high-priced areas like NYC and Los Angeles
As with compliant loans, the FHA loan limits are higher for 2, 3 and 4 units.
This lookup tool will help you identify the existing compliant and FHA loan limits in your area.
What about the VA loan limits?
The VA loan limits were removed in 2020. Those eligible for VA loans (including most veterans, service members, and their surviving spouses) can borrow as much as they can afford.
However, expect lenders to check this affordability with a microscope. For very large sums, you will need to demonstrate that you are a creditworthy borrower with sufficient income and financial resources.
Official credit limits for 2022 will be announced this month
Keep in mind that none of the above new information has been officially confirmed. And for the exact numbers, we'll have to wait for an announcement, expected before November 30th.
After the announcement, the new credit limits will come into effect on 01/01/2022.
But it is very likely that the FHFA's announcement will confirm that there will be increases. And that the actual numbers come close to the standard numbers we quoted.
Finally, the regulatory authority uses the “HERA formula” to calculate increases. And that is enshrined in law.
Your next steps
What does this all mean for a borrower looking to buy a home in the appropriate price range? Well, that depends on your personal circumstances and goals.
If you've already found your dream home, you probably shouldn't be messing with your purchase at this point. After all, the seller is unlikely to be waiting for you to arrange a 2022 mortgage. And you can risk losing property.
Of course, if you find that a compliant loan is getting you a better deal than your planned jumbo loan, you can refinance later, provided that the mortgage rates don't rise too high in the meantime.
But suppose you haven't found that dream home yet. You then need to model your options with a mortgage calculator and ask yourself a few questions:
How Much Could You Save Waiting for a Compliant or FHA Loan Instead of a Jumbo Loan? Do you have to move urgently? Not everyone has the luxury of waiting a few months longer. How fast are property prices going up where you want to buy? If very quickly, it could drain your potential savings
Depending on your answers to these, you may or may not benefit from waiting for a conventional or FHA loan in 2022.
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