Will Larger Conforming Loan Limits Bring a Housing Crisis? Home prices have been on the rise in a very quick manner for some time now and they do not appear to be hugely slowing down. A large reason for the increase in home prices is low mortgage rates that have fueled a very high number of buyers to compete for the small number of homes listed for sale currently.
This is causing homebuyers to take out larger mortgage loans to finance larger home prices than ever before. Because of this, in 2022 we will see conforming loan limits rise to numbers that are very large.
A conforming loan is a traditional loan that most borrowers are offered when seeking a loan from a traditional lending source. These loans are backed by Fannie Mae and Freddie Mac the two government-sponsored authorities that purchase mortgages from lenders. It is possible to get what is considered a non-conforming loan that is not backed by these entities, but these loans are less traditionally sought after.
Each year the maximum allowable amount of money, or limit, is set for conforming loans just before January of that year. For the year 2021, the limit for most areas is $548,250. This limit rises for areas that are known for higher average home prices like areas in California including here in Mission Viejo where the conforming loan limit is set at $822,375.
In the year 2022 conforming loan limits are going to rise to $647,200 for standard areas across the country and to a whopping $970,800 for high-cost areas, which is nearly $1 million. That’s a very high amount of money and it has some people worried that we will hit another housing bubble crisis as we did just under two decades ago.
Will these rising loan limits cause borrowers to borrow more than they can afford?
The housing crisis of 2008 drove several homebuyers into foreclosure and caused, even more, to be underwater on their mortgage. Their home was worth less than what they owed. A driving factor for why this occurred was that too many borrowers took on very risky mortgages that they could not afford and they fell behind and lost their homes.
Since this housing crisis of the not-so-distant past, mortgage lenders have clamped down on their qualifications. And many homebuyers have become much savvier in making sure they are making an educated purchase. Both entities have become more conservative in their lending and borrowing practices.
And the combined aspects of lenders being more reluctant to just give away money and borrowers being a little more knowledgeable about the borrower process are said to be key in preventing another housing crisis.
Mortgages are also more affordable right now
Though mortgage rates were enticingly low just before the most recent housing crisis, they were nowhere near as low as they are right now. This means that the monthly payments are much more affordable on a higher amount of money than many homeowners or potential buyers realize.
A lower interest rate of just 1% less can bring a home payment down hundreds of dollars per month making borrowing a higher amount of money more affordable than some people would think. Yes, mortgage interest rates are rising and expected to rise over the course of 2022, but they will not skyrocket over the next year and are expected to remain relatively low.
For more information on your current mortgage options in Mission Viejo and California, please contact me anytime.
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For help finding the right type of mortgage in California please contact me at any time.