Dreaming of a house on a cul-de-sac with a flower garden and a backyard big enough for your golden retriever? A key part of making that dream come true is getting the right financing. Most homeowners need a home loan to achieve their white-picket-fence fantasy, and there are a few things you need to know about homebuying in 2022’s competitive market.
We know increasing home prices can seem daunting to buyers, but there are still pathways to reaching your homeownership goals. As home prices go up, rising loan limits are changing the financing process for home buyers. Keep reading to get the details on the recent loan limit increase, how to make smart spending decisions and much more.
Mortgage Loans and Limits
Let’s bring it back to the basics; what is exactly is a mortgage loan? When you try to buy a house, you are entering an agreement with a mortgage lender that you will make consistent payments to pay off your debt until you own your home. A mortgage loan is considered a “secured” loan because you, the borrower, offer up your home as collateral if you default on the loan.
Now that you understand how mortgages work, where do limits enter the equation? A mortgage loan limit is the maximum amount of money you can borrow from a lender under certain mortgage programs. There are different maximum borrowing limits depending on the type of loan you take out. However, these limits have increased significantly as the Federal Housing Finance Agency, or FHFA, has determined that home prices have risen by at least 18% across the nation.
How Have Home Loan Limits Increased in 2022?
Many people feel overwhelmed or intimidated when trying to research loans and calculate interest on their own. FCU has been helping members get their dream homes for years, and we are proud to offer conventional mortgages as well as government-backed FHA, VA and USDA loans. With interest rates at a multi-decade low, there’s never been a better time to learn more about your mortgage options. Consider us your expert home financing translators as we break down the new loan limits for 2022.
Conventional Loan Limits
One of the most common mortgage types is conventional conforming loans, which are mortgages that meet Fannie Mae and Freddie Mac funding guidelines and the FHFA’s dollar limits. There are baseline limits for conventional loans that vary depending on where you live. Starting January 1, 2022, the new conforming loan limits for single-unit homes were increased to $647,200 in most of the U.S. and $970,800 in high-cost areas.
It’s important to note that loan limits refer to the loan amounts, not the overall price of the home. For example, you could still qualify for a conforming loan for a million-dollar single-unit home if you put down $400,000 because the overall loan amount would be $600,000. With increasing limits for conventional conforming loans, you can finance more home without needing more qualifications.
FHA Loan Limits
The Federal Housing Administration, or the FHA, also increased its lending limit at the beginning of the calendar year based on rising home prices and the updated guidelines set by Fannie Mae and Freddie Mac. The FHA loan limits for single-unit homes were increased to $420,680 in most of the U.S. and $970,800 in high-cost areas. This loan type is government-backed and ideal for first-time homebuyers with less than perfect credit.
How Much House Can I Afford?
The best advice we can give you is to approach higher loan limits with caution. While limits on conventional and government-backed loans may have increased to keep up with real estate prices, this doesn’t mean your budget has also increased. Establish smart spending habits now by investing in a house within your budget and a loan that isn’t beyond your means. If you spend better now, you may be able to afford a bigger home or a better location in the future.
If you’re trying to stick to a reasonable budget while taking advantage of record low-interest rates on mortgage loans, we are here to help you figure out how much home you can actually afford. A good rule of thumb is that your monthly housing costs should account for 30% or less of your take-home pay. Your housing costs go beyond your monthly mortgage payment and may include items such as:
- Homeowners insurance
- Property taxes
- HOA fee
- Private mortgage insurance payments
Before you set your heart on a home or a loan, we suggest using a mortgage calculator to figure out what monthly mortgage payments are doable for your budget.
Once you figure out how much house you can afford based on your income and finances, FCU is ready to guide your next steps. Visit our site for more information on mortgages and how to become a member of a credit union that prioritizes your financial health.
Florida Credit Union is a full-service financial institution. Founded in 1954 as the Alachua County Teachers’ Credit Union, FCU now services over 130,000 members in 48 counties throughout North and Central Florida. For more information on the services we provide, visit FLCU.org or call us at 1-800-284-1144.