On 11/30/21, the Federal Housing Finance Agency (FHFA) announced a major increase in the baseline conforming mortgage loan limit for 2022. The federal government will now back loans of up to $970,800 in Hawaii, a game-changing development for anyone thinking of buying or selling in the Aloha State.

Why, exactly, is this news so significant? For many borrowers, it means qualifying for a conforming loan rather than a non-conforming (or jumbo) loan. A conforming loan equates to a lower down payment requirement and access to more options for more competitive rates.

In the past, a non-conforming loan was needed for the purchase of any property in Hawaii valued above $822,375. Banks have historically viewed jumbo loans as more of a risk than conforming loans, because they aren’t guaranteed by Fannie Mae or Freddie Mac, meaning that if a borrower defaults, the lender is forced to absorb the loss. And when a bank considers a loan risky, borrowers get less favorable terms.

In an effort to keep up with market conditions, though, the Fed updates conforming loan limits annually, based on year-over-year appreciation by September 30. According to the FHFA House Price Index (HPI) report, home prices rose an average of 18.05% from the third quarter of 2020 to the third quarter of 2021. As a result, the current loan limit increase is noteworthy as the largest single adjustment on record (going back to 1970), according to Inman News.

For many regions nationwide, the conforming loan limit will increase from $548,250 to $647,200 in the year to come. But in certain locations, like Alaska, Guam, the U.S. Virgin Islands, and the Hawaiian Islands, special statutory provisions apply, resulting in the new baseline limit of $970,800 (or 150% of $647,200). Rates will also increase to $1,243,050 for two-unit property mortgages in Hawaii, to $1,502,475 for three-unit property mortgages, and to $1,867,275 for four-unit property mortgages.

This sizable shift in conforming loans means more buyers will have a chance to purchase their dream home on great terms. But it’s welcome news for homeowners, too. Those who want to stay in place will now have an opportunity to utilize more equity by borrowing up to the higher loan limit - and those who are ready to sell will find that the change brings more potential buyers to their doorstep.

Reach out to the team at Romvari Realty to learn more!