Every year, the Federal Housing Finance Agency (FHFA) establishes a limit on how much money a person can borrow to buy a home using a conventional loan. This “conforming loan limit” caps the amount of a mortgage sold to, or guaranteed by, Fannie Mae and Freddie Mac.

Typically, those conforming loan limits increase in tandem with inflation and rising home prices. For reference, the limits on single-family homes increased by roughly 7.4 percent from 2020 to 2021. The three years prior to that, the limits increased 5.4 percent, 6.8 percent, and 6.8 percent, respectively.

For 2022, the conforming loan limits will jump an unprecedented 18 percent to $647,200 for single-family homes, with laddered increases for multi-family residences with up to four units.

While you may think the upper limits for borrowing don’t really affect you, the truth is that this big increase is good news for homebuyers at a wide range of borrowing levels.

What This Means for You

Generally speaking, using a conventional mortgage loan provides the buyer with better interest rates and easier criteria for qualification. It can also often mean lower closing costs. 

For reference, the median home listing in Dane County is $350,000 – well below the limit. Yet, housing prices are skyrocketing and inventory is low. That combination of limited supply and high demand could continue to drive up prices for a while. Houses that used to fall around that median listing price could start to creep up toward the conforming loan limits in the future.

With that in mind, here is a brief summary of how the conforming loan rate might benefit you personally now or down the road:

• You could purchase a home that exceeds the conforming loan limit as long as you have a down payment that brings the mortgage under that limit. For instance, if you put 20 percent down on a home you purchase for $809,000, your actual mortgage loan will still fall within the limit, at $647,200.
  
  
• You can invest in a multi-family residence with up to four units, with loan limits now ranging from $828,700 to $1,244,850.
  
  
• You could refinance an existing jumbo loan or portfolio loan into a lower-interest, fixed-rate, conventional mortgage loan that now falls under the new limits.
  
  
• If you have built-up equity in your home, you could refinance an existing loan to consolidate debt or cash-out for an immediate need.

In short, you have much more flexibility in purchasing a home or refinancing your existing mortgage.

What This Means for Refinancing

Right now, there are a lot of good reasons to consider refinancing your existing mortgage.

As you may already know, interest rates over the last year or two have reached historic lows. In fact, it may still make sense to consider a mortgage refi even if you refinanced as recently as 2020.

Here are some of the reasons to consider a potential mortgage refinance right now:

1. You currently have a jumbo loan. Even if you can’t fit your entire mortgage under the conforming loan limits, you could still move a portion of your loan over to a conventional mortgage to take advantage of the lower fixed rates.
   
   
2. You would like to shorten the terms of your mortgage. A lower interest rate might enable you to move from a 30-year mortgage to a 20- or 15-year term, saving you thousands of dollars in interest over the course of your loan.
   
   
3. You have debt consolidation or cash-out needs. Whether you want to pay off a higher interest loan and consolidate under your mortgage umbrella or you just need to free up some extra cash for a remodel, a vacation, or to fund your retirement plans, the equity in your home may be a great option thanks to incredibly low mortgage loan rates.

The reasons and relative benefits of refinancing your mortgage are complex. In reality, the answer to whether you should refinance is based on your personal circumstances. Your best option is to talk to a mortgage loan expert at Lake Ridge Bank to review your situation and goals for the solution that matches your needs.

For more information about conforming loan limits, mortgage refinancing, or using the equity in your home to fund another financial goal, contact the mortgage loan professionals at a Lake Ridge Bank office near you to schedule a one-on-one conversation.