Higher Mortgage Limits Give Buyers More Breathing Room

$647,200

That’s how big your mortgage can soon be before extra costs are apt to kick in, thanks to a record increase in the government’s limit on so-called conforming loans.

In most places, the government’s mortgage limit—currently $548,250—will go up 18%, or $98,950, next year to match the pace of home price increases, the Federal Housing Finance Agency announced Tuesday. That gives prospective homebuyers more room to avoid the extra scrutiny, closing costs, and higher interest rates that may come with “jumbo” loans that are over the limit.

“Conforming” loans tend to be less expensive and easier to get than jumbo loans because they are backed by Fannie Mae and Freddie Mac, government-sponsored companies which purchase them from lenders. The latest increase in the limits is the biggest-ever by dollar value (the first limits were in the 1970s) and the largest by percentage terms since 1980. A higher limit applies in certain areas like Alaska and Hawaii, and where homes tend to be pricier—such as New York City. That will go up to $970,800 from $822,375. 

The limits are based on home prices, which have skyrocketed in the pandemic era as low mortgage rates and a quest for more space have increased the appeal of buying but not the supply of homes for sale.

“The conforming loan limit has lagged behind reality on the ground for several months,” said Jeff Tucker, senior economist at real estate company Zillow. “It’s catching up to the reality of what borrowers are actually dealing with out there.”

And while the move might make the homebuying process a little easier for some, it’s probably not going to pour a ton of fuel on the housing market fire, Tucker said. People considering a more expensive home would probably buy it whether it required a jumbo or conforming loan, he said.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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Sources
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  1. Federal Housing Finance Agency. “FHSA Announces Conforming Loan Limits for 2022.”

  2. Federal Housing Finance Agency. “Loan Limits.”

  3. Federal Housing Finance Agency. “Conforming Loan Limits.”

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