Conforming Loan Limits

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On November 30, 2021, the Federal Housing Finance Agency (FHFA) announced an increase in the maximum conforming loan limit on mortgages taken on by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The maximum limit for single-unit properties will be $647,00 in 2022, representing an increase of almost $99,000 on 2021's limits. Put simply, the conforming loan limit is the maximum dollar value for a mortgage that can be purchased or guaranteed by Freddie Mac or Fannie Mae. While both Freddie Mac and Fannie Mae are independent corporations, they are bound by regulations handed down to them by the FHFA.

This increase in maximum limits is not an unexpected announcement. The Housing and Economic Recovery Act (HERA) — implemented in 2008 as a response to the subprime mortgage crisis — requires that the baseline conforming loan limit be reviewed every year and adjusted according to changes in the median home price across the United States. When the FHFA released its Q3 Price Index in November 2020, it recorded an increase of 7.42% on average year on year for home prices in the U.S. As such, the baseline maximum conforming loan limit will be increased by this same percentage value for 2021. It is worth noting that this is just a baseline figure. In other words, this figure of $548,250 is not a blanket limit to be implemented across all locations. Instead, it will be used to determine the maximum conforming loan limit across the continental United States. This does not apply to Hawaii, Alaska and overseas U.S. territories, however. Property buyers and mortgage applicants in these locations will find themselves working with a different maximum conforming loan limit. 

How this Conforming Loan Limit will be implemented in your area depends upon the median home value in your county or in your county-level jurisdiction. The FHFA arrives at the maximum conforming loan limit by first identifying the median home value in each area and then carrying out a simple calculation to determine 115% of this value. If 115% of the median property value in any given area is greater than the baseline conforming loan limit, then a higher loan limit will be implemented based on this. There are restrictions on this, however. Under HERA, the regional conforming loan limit cannot exceed 150% of the baseline limit anywhere across the lower 48 states. In practice, this adjusted limit applies in most cases. In almost all counties — or jurisdictions equivalent to county-level — across the USA, 115% of the median house price is in excess of the Federal Housing Finance Agency's limit. This is thanks to rapidly increasing property prices in many locations across the country. The unmodified baseline level will only apply in 18 counties or similar jurisdictions across the United States. Special measures are implemented outside of the continental United States, however. In states such as Alaska and Hawaii, and in territories such as Guam and the U.S. Virgin Islands, a unique baseline conforming loan limit will be put in place. For 2022, this loan limit will be $970.800 for a single-unit property in these locations. Again, this is a baseline value, and the applied conforming loan limit could theoretically exceed this value in some counties.

To find out more about how the FHFA's baseline conforming loan limit increase will affect your mortgage or loan, reach out to our team. We will be happy to provide you with the answers you need to help you get the best from your property purchase.