Currently, home prices are off the roof across the country, and the rising demand for houses is the main reason, with other multiple factors. But thanks to the increase in conforming loan limits by FHFA, jumbo loan baseline limits also increase, which is helpful in the red-hot housing market.

If you select a house in a pricy area or have a high price tag, your conventional mortgage is insufficient to cater to your demand and fulfill the criteria. It is where the jumbo loan comes in; they are described as loans exceeding your traditional house loan limits.

But to get a jumbo loan, you must have a strong credit history, a higher credit score, and big cash reserves, besides other requirements. If all these boxes are checked, you can apply and get a jumbo loan exceeding the latest conforming loan limits by FHFA (Federal Housing Finance Agency.

Understanding Jumbo Loan

Jumbo loans exceed the Limit of a conforming loan; a conforming loan is the maximum loan limit that Fannie Mae and Freddie Mac guarantee. Fannie Mae and Freddie Mae are government-sponsored enterprises responsible for setting and underwriting rules, setting mortgage limits, and getting loans from qualified lenders.

The loans that are purchased by Fannie Mae and Freddie Mac from qualified lenders come are called conforming loans, and these loans are appraised as safe investment options as compared to jumbo loans because it is easier for borrowers to qualify for these loans as requirements are less tough than in case of jumbo loans.

In the wake of a significant increase in Home prices across the United States, Federal Housing Finance Agency has also increased the Limit for conforming loans for the year 2022. It implies that the Limit for jumbo loans has also increased; the increase depends on the area where you live and where you are planning to buy your new house.

States like Hawaii and San Francisco have higher limits due to expensive land and house rates; if you have no issue meeting the lender's criteria, you can broaden your choices of getting your house in more prime locations as your jumbo loan limit allows you to do it.

Conforming Loan Limits for 2022

Keeping in view the current market condition and skyrocketing house prices, the FHFA increases the mortgage amount by a staggering 18% for the year 2022, which raises the conforming loan cap for a single unit home in most counties of the US by a hefty $98,950 to a total of $647,200 for next year mortgages.

Almost all mortgage lenders follow these guidelines, allowing the borrowers to access a greater line of credit, which helps them buy the house of their choice in this super competitive housing market.

In the areas where the median house prices are higher than the rest of the country, the conforming loan limits for these areas are adjusted; accordingly, in places like California and New York, there is an increase of $57,375 from the Limit in 2021, and for the year 2022 it stands at $970,800. Similarly, Alaska, US Virgin Islands, Hawaii, and Guam have a base loan limit of $970,800.

Jumbo Loan Limit and Requirements

If your house mortgage requirement is not fulfilled but the conforming loan, then you need to consider the option here Jumbo loan is the best, but as jumbo loans have higher than the base limit of conforming loans, lenders' requirements are also tough for this loan. The interest rates will also be higher than the conforming loans as the amount is way bigger in Jumbo loans.

Here is some requirement that most lenders look for before awarding a Jumbo loan.

• Strong Credit Score: The first and far most important requirement that every lender considers is a strong credit score; usually, a credit score of 680 is acceptable for most lenders, but some lenders may demand an even higher score. A strong credit score directly relates to interest; a higher credit score increases your chances of getting low-interest rates.
• Bank Reserves: Having higher cash reserves at your bank and fewer debts increases the confidence of lenders, and they are more inclined to approve your loan.
• Larger Down Payment: A larger down payment may increase your chance of getting approval, but it may vary from lender to lender and depend on your financial history.
• Additional Evaluation: Some lenders may require an additional evaluation of the house you are planning to buy to check or verify the amount you are applying for is worth the house's value.
• Extra Fees: As you borrow a larger amount of money from the normal Limit, the lenders may charge an extra fee, as more steps and work are required to process and finalize your jumbo loan request.
• High-Interest Rates: Although interest rates are subjected to market behaviors and changes, in jumbo loans, they are at a much faster pace than the conforming loans.

Why there is a need to Increase Borrowing Limits

According to Housing and Economic Recovery Act (HEERA), conforming loan limits are analyzed annually to check whether there is a need to increase those limits. After analyzing HEERA dictates and sets the baseline for conforming loan limits, which are adjusted according to the average home prices in the US; these prices are adjusted as per FHFA, house price index (HPI).

As there is a sharp increase of 18.05% in the HPI index between the third quarters of 2020 and 2021, the conforming loan baseline limits are increased according to this percentage.

Counties where Loan Limits Remain the Same

There are certain counties in the US where the loan limit remains unchanged for the year 2022; these counties include the

• Routt County, Colorado ($678600)
• Summit County, Colorado ($822375)
• Dutchess County, NewYork ($726525)
• Orange County, New York ($726525)

What increase in Limit holds for the Consumers?

The increase in Conforming loan limits advantages the consumers to keep up with the increasing prices of houses; in this way, they can secure a mortgage within the GSE limits, but if the loan limits don't go up, then consumers are left with two option, either pay the difference in cash or apply for Jumbo loan.

Final Thoughts

Jumbo loans provide an opportunity for the borrowers to mortgage a home of their choice; with the increase in house prices, the conforming loan limits are also raised by FHFA, which in contrast, also sets the limit bar for Jumbo loans even higher.

But there are certain requirements that lenders demand before awarding the Jumbo loan; one has to comply with these to secure a loan to buy their dream house.