Last year, house prices rose by over 18% — so loan limits are rising with them. As a result, the Federal Housing Finance Administration (FHFA) has announced its largest loan limit increase in history.
This is big news if you’re planning to take out an FHA loan or a conventional loan. None of us knows how high house prices might go. But this adjustment to loan limits means you should still be able to get the mortgage you need. Let’s dive into what these loan limits are and what they may mean for you.
Wait, the Government Can Limit My Loan?
Contrary to their name, loan limits aren’t about keeping you from getting an amazing house. They’re actually designed to help as many people as possible get their dream homes.
You see, when you apply for a mortgage, you work with a lender or a bank. But lenders and banks don’t have unlimited money. And if they tied up all their money in people’s houses, they would quickly run out!
Here’s what they often do instead: Congress created government-sponsored entities (GSEs) like the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Housing Administration. You likely know them as Freddie Mac, Fannie Mae, and the FHA. The whole purpose of these GSEs is to make sure there’s enough money for mortgages throughout the country.
So, you take out your loan. Your bank or lender sells your loan to one of these GSEs. Then, the GSE sells the loan to private investors, who ultimately fund the loan.
Why do you need all this background? Well, remember that the purpose of these GSEs is to make sure there’s enough money for everyone to get the loans they need. That means they need to be careful about the size of the loans they’re buying. So, the FHFA sets a limit for the GSEs. They can only buy mortgages under a certain limit. These are called “conforming loans” because they conform to the FHFA’s rules.
So Why Did the Loan Limits Change?
Every year, the FHFA looks at the median house price in every county in the United States. When house prices go up, the FHFA adjusts its loan limits accordingly. Of course, house prices vary widely across the U.S., so there isn’t one federal limit. Instead, the limits are set by county so you can get a loan that’s reasonable in your area.
For example, if you get a conventional loan for a house in Knox County, Tennessee, you’ll have a conforming loan limit of $647,200. This will be true in most counties. However, if you move to a high-cost area like Orange County, California, you’ll have a much higher limit of $970,800.
What Are the New Conforming Loan Limits for 2022?
Your conforming loan limit depends on what type of loan you’re getting. Let’s start with conventional loans.
Conventional Loan Limits
The standard 2022 conventional loan limit for a single-unit house is $647,200. In high-cost areas, this limit goes all the way to $970,800. Your county’s limit can be anywhere between these two numbers, as well.
There are also higher limits for multi-unit properties. The limits for these properties are:
Two Units: $828,700–$1,243,050
Three Units: $1,001,650–$1,502,475
Four Units: $1,244,850–$1,867,275
FHA Loan Limits
The standard 2022 FHA loan limit for a single-unit house is $420,680. In high-cost areas, this limit goes all the way to $970,800. Just like with the conventional loan, your county’s limit can be anywhere between these two numbers.
The limits for multi-unit properties are:
Two Units: $538,650–$1,243,050
Three Units: $651,050–$1,502,475
Four Units: $809,150–$1,867,275
Knowledge is Buying Power
As house prices continue to rise, it’s important to know where you stand in this competitive market. The FHFA has made adjustments to help you afford the house of your dreams. Now, let’s work together to get you there!
Call our team at 865-238-7500 or message us to learn about your loan options. We’d love to show you the possibilities and guide you to the best choice for you and your family.