Are you considering buying a house in the near future? If so, you need to work with Babak Bijarchi of B Squared Funding, a home loan mortgage broker in Long Beach CA. Because of the massive changes that have taken place in the housing market this year, the conforming loan limit on Fannie and Freddie home loans is set to jump significantly January 1, 2022. This is big news for anyone looking at a Fannie Mae Loan or a Freddie Mac Loan. The FHA home price index is changing quickly, which means FHFA loan limits for 2022 might have to go up as well. What does this mean for the future? Work with a Babak Bijarchi, mortgage loan advisor in Long Beach CA to help you make the best decision for yourself and your family.
What Is the Conforming Loan Cap?
The first thing you need to do if you plan to purchase a home is get pre-qualified and pre-approved for a home loan. That way, you can make a competitive offer on a house. Additionally, you will have a rough idea of your home-buying budget. There is a cap on the conforming loan limit right now. If you need a loan that is bigger than the conforming cap, you may have to apply for a jumbo loan, which requires more paperwork and could carry a higher interest rate.
Because home prices are rising, Fannie and Freddie know that they need to increase the conforming loan cap. With the announcement of conforming loan cap increases for 2022, it will be easier for homebuyers to apply for conforming mortgages and will reduce the number of homebuyers who have to apply for a jumbo loan. Because housing prices are already relatively expensive in Southern California, a lot of people have to take out a jumbo loan just to purchase a typical single-family home. With the conforming loan limit going up, the process will get easier.
What Is the Conforming Loan Limit Right Now and What Will the New Limit Be?
Right now, the limit of a conforming loan is $548,250. This is the conforming loan limit for single-family homes in most markets. Some lenders, such as a PennyMac mortgage and United Wholesale Mortgage (UWM) are now offering a “conforming loan” of up to $625,000. They understand that home prices are going up, and some buyers might need to take out more money to be competitive in the current market. While it is uncertain how far the conforming loan cap might go up, it is clear that it needs to increase. Many lenders believe that home prices will continue to go up, meaning they might be able to sell bigger loans to Freddie Mac and Fannie Mae when the conforming loan limit goes up.
Based on the way home prices are changing right now, it would not be a surprise to see the conforming loan limit jump by more than $75,000 on January 1st, 2022. The biggest percentage jump was close to 16 percent in 2006. While the jump might not be that much, it is probably going to be significant. In particular, housing prices have gone up significantly in Southern California, particularly Orange County, because there are a lot of people who are looking to take advantage of low mortgage rates to buy property in the local area.
How Do They Decide How Much To Raise the Limit?
There are a lot of factors that are involved in deciding how much to raise the limit; however, after the housing crash and recession that took place in 2008, the limit did not go up for close to 10 years. It remained at $417,000 until home prices increased to their previous levels.
As the national average home price goes up, the conforming loan limit has to go up as well. For example, last year, the conforming loan limit increased by $37,850. That was an increase of approximately 7.4 percent and put the number at $548,250 where it sits today. Given the rapid increase in housing prices during the past year, it is likely the cap will go up significantly in 2022.
Typically, the FHFA loan limits are released in November of the prior year. Then, the actual limits go up on January 1 of the new year. In particular, housing prices are going up quickly in the Southern California area. This means that anyone who is looking for a house in San Diego County, Orange County, or Los Angeles County needs to keep a close eye on housing prices and the conforming loan cap.
How Does All of This Impact Buyers?
Even though there are a lot of numbers being thrown around, a lot of people are wondering what this means for them. Regardless of whether they are applying for a PennyMac loan or a different loan, buyers need to make sure they have the right information so they do not overpay for a house. At the same time, they need to make sure they are competitive, particularly in a market that is as hot as this one.
Even though it is possible that home sales may slow down during the holidays because people do not want to move, it is important for people to keep an eye on the conforming loan cap. It can be challenging for some people to get approved for a jumbo loan, and it might be easier to wait for the loan limit to go up next year. That way, people do not necessarily have to take out a jumbo loan anymore.
On the other hand, because the market is so competitive, it might not be a good idea to wait, as mortgage rates could go up. This is why it is critical to work with Babak Bijarchi of B Squared Funding, a Long Beach mortgage broker.
Find an Experienced Local Mortgage Broker To Help You Purchase a Home in Southern California and Orange County
Right now, there are a lot of changes happening in the housing market, and some people are concerned that they might not be able to find the right house in Los Angeles County or Orange County. Regardless of where you are looking, it is important to work with a mortgage broker who can guide you through this process. Even though there is a lot of jargon thrown around, the conforming loan cap is going to up in 2022. This could make it easier to purchase a house using a conforming loan. Reach out to Babak, a local mortgage broker who can help you make the right decision for your housing search.