If you’re looking to refinance soon, you’re in luck. Fannie Mae and Freddie Mac are expected to raise the ceilings on conforming loans.
For many borrowers, this can mean taking advantage of larger loans without taking on the higher fees and interest rates associated with jumbo loans. The Federal Housing Finance Authority (FHFA) establishes these loan limits to maintain stability within the market. The limits are based on average home prices across the country.
As demand pushes home prices up nationwide, loan limits are rising accordingly. In Q1 of this year, home appreciation was up 12.9% and by Q2 jumped to 16.2%. Many welcome this increase as necessary assistance for borrowers to make home-buying possible. When this article was written in October of 2021, the most common conforming loan limit was $548,250. More than this, and you’d most likely need to consider a jumbo loan and meet the stricter qualifying requirements and higher interest rates and fees.
Come November, we are expected to see an increase in conforming loan limits. This will benefit many homeowners looking to buy big or access equity without having to go with a jumbo loan. Big lenders across the country are all announcing their new and improved loan limits. Mortgage leaders United Wholesale Mortgage and PennyMac will be raising their capt to $625,000. Many others are expected to follow suit.
Home values vary drastically between states. In higher-priced markets, such as Alaska and Hawaii, mortgages are already allowed to amount to 150 percent of the baseline conforming loan limit. In these states, a loan for a single-family home can be up to $822,37.
Jumbo loans vs conforming loans
For borrowers looking to make larger than average home purchases, jumbo loans have often been the way to go. While jumbo loans eliminate barriers for these kinds of investments, they also are without the benefits of conforming loans.
Because these loans are a bigger risk for lenders, borrowers often have to jump through additional hurdles. This includes a larger down payment, higher credit score, extensive documentation, higher interest rates, higher closing costs, and, in many cases, a second appraisal.
Conforming loans, on the other hand, offer smaller loan amounts but more favorable terms. Borrowers of conforming loans can enjoy lower interest rates and more conservative closing costs.
The bottom line:
The conforming loan limit increase is a welcome change for many borrowers to keep up with climbing home prices. They offer the same favorable benefits with more options. Regardless of the possibilities, borrowers should still keep a realistic idea of their budget in mind.