Skyrocketing home prices in 2021 could force Fannie Mae and Freddie Mac to increase conforming loan limits to a baseline of $650,000 and nearly $1 million for high-cost markets, according to a recent Wall Street Journal report. The 2022 limit will be an 18% increase from the 2021 baseline limit of $548,250. And since the high-cost area loan limit is usually 150% of the baseline, that limit would rise to $975,000. The Journal based this growth on the corresponding increase in home prices, which is up 18.5% from a year ago, according to the FHFA’s August Price Index. 2020’s home price increase was 7.42%, which increased the loan limit in 2021.
The limit increase will provide relief for buyers, especially those in high-cost areas, making it easier and cheaper to secure loans for amounts just above the current conforming loan limits, eliminating the need to apply for a jumbo loan or find a home under the limit.
Increasing the loan limit is not the first time this year that Fannie and Freddie have helped borrowers. Historically, loans underwritten through Fannie Mae’s Desktop Underwriter (DU) were subject to a minimum 620 credit score requirement. In September, Fannie Mae updated DU to use instead of the average of all borrowers’ median credit score for eligibility. Not only does Fannie’s research show this to be a more accurate assessment of credit risk, but also expects that a larger percentage of borrowers from underserved populations will now be eligible for DU approval.
The exact new loan limit amounts will be confirmed on November 30, 2021, before going into effect on January 1, 2022.
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