Recently, the Federal Housing Finance Agency announced changes to the conforming loan limits for 2022. And they are increasing 18% from 2021, the largest yearly increase on record. 

The new loan limit for conforming loans, which can be bought by Fannie Mae and Freddie Mac, will rise to $647,200 in the new year for most areas, up from $548,250 at the present time. 

In the nation’s most expensive real estate markets, like New York City, Washington D.C., most of California and all of Alaska and Hawaii, the new 2022 limit will grow even higher to $970,800, up from $822,375.

The enormous jumps in loan limits were based on the FHFA House Price Index which found that U.S. home prices rose 18.5% from the third quarter of 2020 to the third quarter of 2021, the fastest recorded annual growth. By contrast, prices only grew 7.8% from 2019 to 2020. That price increase was fueled by super-tight housing inventory, ultra-low mortgage interest rates, and strong buyer demand. Some states saw astronomical prices leaps, like Idaho where prices surged 35.8%.

What does all this mean for you as a buyer or refinancer in the next year? It means it will be easier to qualify for a conforming loan and all the associated benefits.

Conforming Loan Benefits

• Lower Interest Rates
• Because conforming loans, can be bought by government-sponsored entities (GSEs), they are considered safer by lenders and they can afford to offer you better, lower interest rates than they can with non-conforming loans. 
• Lower Mortgage Payments
• Lower rates often translate to lower monthly mortgage payments, saving you money in both the long- and short-term.
• Lower Down Payments
• Some Fannie Mae and Freddie Mac loans require as little as 3% for a down payment, whereas many conforming loans might require much more to compensate for the added risk of a non-conforming mortgage. 

The higher loan limits will make obtaining all these advantages much easier. The existing limits did not change during 2021 even as prices quickly rose above them in many areas, making it difficult for many to buy a home. Now more property options will be open to you thanks to the larger price range. Of course, your mortgage eligibility will still be determined based on things like your income, debt, and credit scores, but a higher loan limit provides more choices if all those factors are in order. With a higher limit, you can be more aggressive and competitive in today’s buyers’ market. Plus, if you intend to take on a fixer-upper, the raised limit could provide a little more repair money for your budget if you take out a home renovation loan.

If you hope to qualify for a conforming loan in 2022, you’ll need to have a credit score of at least 620, a debt-to-income ratio of 45% or less, and a down payment of at least 3%. While these factors remain constant from year to year, the higher loan limits should make qualifying easier for you in the new year. Contact us to find out more.

The time of year is often a time for decluttering and organizing the home for a fresh start. As you sort through your file cabinet and see how much room all your mortgage documents take up, you may wonder how long you need to hold on to all that paperwork. Here’s what you need to know before you feed it to the shredder.

Why You Should Keep Your Home Loan Documents

Even after a home purchase is finalized, several issues might arise that would require your mortgage documents to resolve. Tax discrepancies with the IRS, undisclosed property problems, payment disputes with the lender or your real estate agent, homeowners’ insurance claims challenges. These are a few situations that could pop up in the months or years after you buy your home. Below are the types of mortgage records and how long you should keep them.

Deed 

A deed is the proof that you have ownership of the home, and it is signed by you and the seller. This should be kept as long as you own the property. The deed will be recorded in land records after you’ve paid off your mortgage, but even then, tangible proof that you own the place may be safer.

Mortgage and Promissory Note

This is your contract to pay back your mortgage loan and should be kept handy the entire time you own the property as well. It is important to have a record of the original agreement and terms to prove you fulfilled your end of the bargain.

Closing Disclosure

This piece of paper documents the points and fees you paid at closing to the lender and any third parties. These can sometimes be deducted from your income taxes, and you’ll need the statement as verification. If you do not claim any deductions, you can toss this one after a year from the home sale.

Seller Disclosures

Unfortunately some home problems are either not disclosed or unknown until you move into the house. The disclosures document will provide proof to your homeowners insurance that something was not revealed before you bought the home. You should hold on to this for several years until you feel like you know your home and all its systems well.

Home Inspection Report

This is the thorough pre-sale assessment of your property and its systems. You can get rid of this after three years, but you may want to hold on to it longer to remember things like the age of the roof and HVAC systems and when they’ll need to be replaced.

Home Warranty

This usually lasts a year but can be renewed annually. If you have one, the paperwork makes it easy to check what items are covered for repair or replacement. It can be discarded when you cancel the policy.

Of course today, all of this paperwork can be scanned and saved digitally. While you should hang on to physical copies of the deed and maybe the promissory note, the rest you could save on a hard drive or in another electronic form. The danger is if the hard drive fails, you will lose that documentation. Saving all your mortgage papers in a fire-safe lock box may be the safest way to store all that important information.

When you bought your home, you (hopefully) qualified for a mortgage that you could afford and if you stay on top of it monthly, you’ll own your home free and clear in 30 years (or less, depending on your loan terms.) Making extra payments may not even have crossed your mind, but there are actually plenty of reasons why you might want to scrape together just a little bit more to throw at your mortgage each year.

Build Equity Faster

If you make the equivalent of just one extra mortgage payment a year, you will increase your ownership share in your house faster. This can be financially smart if you bought with less than a 20% down payment and are currently making private mortgage insurance premiums. Once you reach 20% equity in your house, you can cancel your PMI policy, saving you hundreds or maybe thousands of dollars a year.  And if you worry that putting money into your house will make it harder for you to accomplish other projects and goals, you can always tap your home equity through a secondary mortgage loan later.

Save on Interest 

With an amortized loan, the interest is front loaded, so if you make extra payments, it all goes to the principal, reducing the amount you owe, and the amount interest required. If you plan to stay in your home for the long haul, contributing just one additional mortgage payment a year could save you tens of thousands of dollars in interest. The savings will be realized once you finish paying off your home loan.

Be Out of Debt Earlier

If you contribute one extra payment a year, you will end up paying off your mortgage three to four years early on a 30-year fixed rate loan. Of course, that saves you money, but it also means you will own your home free and clear sooner. This might be important if you’d like to be done with your mortgage before you retire or before you take on some other financial goal, like buying a vacation home or taking bucket list travel trips. 

While it might sound daunting to come up with an extra payment every year, there are several ways to do it that make it more manageable. You could save up a little money throughout the year, or you could take an annual bonus or your tax return money and make a one-time principal-only lump sum payment. Another option is to divide your monthly mortgage bill by 12 and add that amount to each payment that year. And finally, you could switch your payments to a bi-weekly schedule. You divide your monthly payment in half and contribute that amount to your lender every two weeks. By the end of the year, that schedule will have added up to one full additional mortgage payment and you likely will not even have felt it in your budget.

The great thing about all these options is that if you ever hit a financial rough spot, you can simply pull back on contributing any extra money without any penalties. You can then use that money for your immediate needs and get back into saving and adding extra mortgage payments when the issues get resolved.