I wanted to write a post today with recent news that 2022 Conventional and FHA mortgage loan limits will be increasing significantly over the 2021 limits in the United States. These loan limits are also known as Conforming loan limits. Any loan size above the limits is known as a Jumbo loan. Meaning Fannie Mae and Freddie Mac may only purchase loans that “conform” to the loan limits.
The Federal Housing Finance Agency (FHFA) under the Housing and Economic Recovery Act of 2008 (HERA) uses a formula to calculate the next years Conventional loan limits based on the current year’s third quarter FHFA House Price Index (HPI) for the United States. This calculation is done at the end of each November for mortgage loans that will close beginning the next January 1.
You might be curious if the loan limits can decrease from one year to the next. The answer is no per the HERA legislation rules. If house prices decrease the loan limits will stay the same as the prior year until house price declines have been “made up” and the current index level exceeds the prior FHFA HPI level before the decline started. This occurred when the one unit loan limit was $417,000 in 2006 and stayed there until Jan. 1, 2017 when the HPI showed an increase for third quarter 2016, allowing higher 2017 loan limits. It has continued to increase ever since to this point.
There are several counties that have especially higher loan limits in a number of states due to the formula FHFA uses based on typically higher costs of housing seen in those counties. These counties are usually found in New York, California, Virginia, Colorado and several other states. By definition per HERA, Hawaii, Alaska, Guam, and the U.S. Virgin Islands have higher loan limits as well.
The loan limits adjust higher according to number of units in a property. A single family home or condo or townhouse is known as a one unit. A duplex would be two units, a triplex three units and a quadplex four units. In Chicago, where I’m from we refer to these often as 2 flats, 3 flats or 4 flats.
Below are the 2022 Conventional loan limits for most counties in the U.S.-
1 Unit $647,200
2 Unit $828,700
3 Unit $1,001,650
4 Unit $1,244,850
The 2022 conventional loan limits are higher by some $98,000 on a 1 unit to some $190,000 on a 4 unit. These are a significant increase.
If you have read this Blog in the past you know I write about renovation loans and how they can work to add renovation funds into a purchase or refinance mortgage, with approval based on After Renovated Value (ARV). With these 2022 higher conventional loans limits, a door opens to perhaps purchase and rehab a higher cost property or spend more on the rehab.
For example, a 2 unit purchase in Chicago might be $725,000 in some areas. To renovate both units and the basement may cost in excess of $250,000. That’s a total transaction of $975,000. The minimum conventional down payment is 15% as owner occupied 2 unit or in this example, $146,250. That leaves a 2 unit mortgage of $828,750. That is just fifty dollars over the conventional loan limit for a 2 unit of $828,700. So, an extra $50 would have to be added to the down payment and it all works perfectly.
FHA calculates forward mortgage limits based on the median house prices in accordance with the National Housing Act. These limits are set at or between the low-cost area and high-cost area limits based on the median house prices for the area. As a result, FHA loan limits are not the same as Conventional loan limits in most areas, they are generally lower. But there are higher cost counties in a number of states, much like Conventional loans, that will have higher FHA loan limits than the minimums as below that apply to most counties in the U.S.
Below are the 2022 FHA loan limits for most counties in the U.S.-
1 Unit $420,680
2 Unit $538,650
3 Unit $651,050
4 Unit $809,150
The 2022 FHA loan limits are higher by some $50,000 on a 1 unit to some $79,000 on a 4 unit. That is also a significant increase.
As an example, if purchasing a 4 unit in Chicago for $500,000 and adding $335,000 for a full gut renovation, that total transaction cost is $835,000. FHA 203k renovation loans on a 4 unit require a minimum down payment of 3.50% or $29,225 in this example. That leaves a mortgage of $805,775 which is just under the FHA 4 unit loan limit of $809,150.
For Active Duty Military or Veterans, you may be wondering if the Conventional or FHA loan limits apply to VA loans. The short answer is they do not any longer; however, here at PrimeLending our Max VA loan size for 2022 is $1,500,000.
The Blue Water Navy Vietnam Veterans Act of 2019, was signed into law on June 25, 2019. The law took effect January 1, 2020 and states that VA-guaranteed home loans will no longer be limited to the Federal Housing Finance Agency (FHFA) Conforming Loan Limits. Veterans will be able to obtain no-down payment VA-backed home loans in all areas, regardless of loan amount.
As in the above examples, there is also a VA renovation loan to add renovation funds to a purchase or refinance using a VA loan. I have written previously in my Blog about them.
Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. All loans subject to credit approval. Rates and fees subject to change. Not all borrowers will qualify.