Increased home prices and higher demand for more homes fueled a major surge in not only home values but also conforming loan limits. Government regulators realized the changes that were necessary to make homeownership possible for more borrowers. As a result, California’s 2022 conforming loan limits are increasing to $647,200, an increase of $98,950.

“With the recent run-up in-home price appreciation affecting many markets throughout the country, we wanted to step in and provide support for borrowers,” said Kimberly Nichols, Senior Managing Director of Broker Direct Lending at PennyMac. “This will specifically help those trying to purchase a home or access equity in their property while rates are relatively low.”

The industry is also predicting an increase for high-cost areas such as LA County and Orange County in California to be raised from $822,375 to $970,800 in 2022.

Even though the increase isn’t official until 2022, several lenders have jumped the gun and are already writing loans exceeding the 2021 conforming loan limit of $548,250 because of the high increase in home values this year.

Higher conventional loan limits are only a month away, but right now we may be able to find you a lender that is already using the 2022 conforming loan limits until they become the norm for every lender in 2022.



California 2022 Conventional Loan Limits

Just as the nation’s conventional loan limits will increase, so will California 2022 conventional loan limits. The ‘average’ conventional loan limit in California for 2022 will be $647,200 just like it is in other areas of the country.

This is the standard limit, that if you exceed, you’d need jumbo financing to buy a home. However, in certain areas of California, there are higher costs, and the areas have higher limits as a result.

Some of the high-cost areas of California include:

  • Alameda – $970,800
  • Contra Costa – $970,800
  • El Dorado – $675,050
  • Los Angeles – $970,800
  • Marin – $970,800
  • Monterey – $854,450
  • Napa – $897,000
  • Orange – $970,800
  • Placer – $675,050
  • Sacramento – $675,050
  • San Benito – $970,800
  • San Diego – $879,750
  • San Francisco – $970,800
  • San Luis Obispo – $805,000
  • San Mateo – $970,800
  • Santa Barbara – $783,150
  • Santa Clara – $970,800
  • Santa Cruz – $970,800
  • Solano – $647,200
  • Sonoma – $764,750
  • Ventura – $851,000
  • Yolo – $675,050

Unless you buy a home (or live in) a high-cost area, conforming loan limits of $647,200 prevail. If you need to borrow any more than this amount, you’ll need a non-conforming or Jumbo loan that may have higher interest rates and/or tougher qualifying requirements. Fortunately, many counties within California have higher limits because of the high cost of living there.

If you can fit your loan needs into the loan limits for the county you’re buying a home or refinancing a mortgage, you can still take advantage of the conforming loan with its more relaxed guidelines, lower down payment requirements, and lower costs.

Before you jump into a jumbo loan and jump through the hoops involved, let us help you determine if a conventional loan will be a better option.

How Do California 2022 Conforming Loan Limits Work?

Conventional loan limits pertain to conforming loans, aka Freddie Mac and Fannie Mae loans. All loans that fall within their guidelines ‘conform’ to the Fannie Mae or Freddie Mac rules. These loans have the benefit of backing by Fannie Mae or Freddie Mac which means if a borrower defaults, the lender won’t lose all the money invested in the loan.

Freddie Mac and Fannie Mae have loan limits to keep the risk within reason. With loan limits in place, they can avoid backing loans for riskier borrowers but still offer flexible loan guidelines. While you need good credit and a decent debt-to-income ratio, it’s just as easy to qualify for a conventional loan as it is the government-backed counterparts including FHAVA, and USDA loans.

FHA, VA and USDA loans have lower loan limits than the 2022 conforming loan limits in some cases, though, depending on where you live. We can help you decide which loan is best for you, though.

Fannie Mae or Freddie Mac Loan

You must borrow within the conventional loan limits to qualify for a Fannie Mae or Freddie Mac loan, and meet these guidelines:

  • Minimum 3% down payment for first-time homebuyers or 5% for subsequent homebuyers. If you’re refinancing, you’ll need at least 5% equity in the home.
  • Borrowers need decent or even good credit scores. The score required varies, but in general, you should have a 660+ credit score to qualify and get the best interest rates.
  • Borrowers need a low debt-to-income ratio. This is a comparison of your gross monthly debt (income before taxes) and your current debt obligations (plus the new mortgage). Your DTI shouldn’t exceed 43%, which means your debts with the new mortgage shouldn’t take up more than 43% of your monthly income.
  • Proof you can afford not only the monthly payments, but the down payment and closing costs too.
  • Any compensating factors that make up for a lower credit score or higher debt ratio are important too. For example, a credit score below 660 doesn’t automatically disqualify you, especially if you have a large number of assets on hand or an exceptionally low debt ratio that helps you qualify.

If you don’t buy a home that falls within the 2022 conventional loan limits, you’ll need a non-conforming loan. This isn’t’ a ‘bad thing,’ but it can be more expensive and harder to qualify for which is why it’s good news that California conventional loan limits increased for 2022 to accommodate the higher loan values.


Who Qualifies for a Conforming Loan?

To qualify for a conforming loan, you must meet the above guidelines. However, there is one other major factor you must consider.

You must have the income you can prove beyond a reasonable doubt. Conforming loan lenders must prove they did their due diligence to determine you can afford the loan.

With the higher conforming loan limits, it will be a little harder to qualify for loans because you must prove you can afford them. We are here for you every step of the way to find you the loan you can afford and that offers the best terms.

What does that mean today?

You must prove you have a steady and consistent income. Working for an employer and producing paystubs and W-2s is the easiest way to get approved. But even if you’re self-employed you may qualify as long as you can prove steady income.

Borrowers that wouldn’t qualify are those with inconsistent income, or who can’t prove their income. You must be able to prove your income beyond a reasonable doubt to afford the higher loan limits.

What Conforming Loan Programs can you Use?

Conforming loans are conventional loans or those backed by Fannie Mae or Freddie Mac. They must meet the above loan limit guidelines and the qualifying guidelines for the loan program.

The basic conforming loan programs include:

  • Fixed-rate loans – 10, 25, 20, 25, and 30-year fixed-rate loans
  • ARM loans – 5/1, 7/1, or 10/1 ARM loans

Like we said above, you need ‘good’ qualifying factors to qualify for conforming loans. This means you have good credit, money to put down, and a decent debt-to-income ratio. The requirements seem ‘strict’ but they are flexible and great for first-time homebuyers and subsequent homebuyers.

Borrowers can choose which loan term they feel most comfortable with and can afford. Keep in mind, ARM loans are more affordable initially, but then the rate adjusts annually. For example, if you borrow a 5/1 ARM loan you have a fixed rate for 5 years and then it adjusts annually, based on the chosen index and margin.

Why Consider Conventional Loans?

Conventional loans are the most flexible programs because of government backing. If you need to borrow more than the limits allowed for your county, you’ll need a jumbo loan. If you can’t get a conventional loan because you don’t qualify, it’s worth fixing your qualifying factors so you do qualify and can get a conventional loan.

Here are a few reasons why:

  • Lower down payments – While a down payment is an investment in your home, you don’t want to put all your liquid assets into it. The money remains tied until you do a cash-out refinanceor sell the home, neither of which you’ll likely want to do anytime soon.
  • Easier appraisals – Many Fannie Mae and Freddie Mac loans need limited appraisals or are even eligible for appraisal waivers. They don’t have any strict requirements for the properties and the appraisal doesn’t usually hold up the loan process like it used to.
  • Flexible underwriting guidelines – The underwriting guidelines as a whole are flexible with conventional loans. If you can borrow within the increased conventional loan guidelines, you’ll have simple qualifying requirements that are flexible especially if you have compensating factors.
  • Low-interest rates – Conventional loans have some of the lowest interest rates in the industry. With today’s rates and the higher conventional loan limits, you can secure an affordable loan.
  • Fast closings – Conventional loans aren’t hard to get from application to the closing table. With an experienced lender, you can get it done in less than 30 days, making you a homeowner fast!


What if you Don’t Fit in the Conventional Loan Limits?

If you don’t meet the conventional loan limits, even in higher-cost areas, you’ll need a non-conforming loan, such as a jumbo loan. Jumbo loans have slightly stricter underwriting guidelines because they offer loan amounts in the $1 million range or higher.

What is the Jumbo Loan Limit in 2022?

In 2022, any loan exceeding $647,200 falls under the jumbo category. However, there are exceptions in certain counties within California. If you live in a high-cost county, the 2022 California conforming loan limits are higher.

If you live outside of the high-cost counties, though, you’ll need jumbo financing for any loan over $647,200.

How to Qualify for a Jumbo Loan?

If your loan needs exceed the California 2022 conventional loan limits, you’ll need to know how to qualify for a jumbo loan.

To qualify, you’ll need good qualifying factors to ensure your approval including:

  • High credit scores
  • Down payments of 20% – 30%
  • Stable employment and income
  • Low debt-to-income ratios

Jumbo loans don’t follow any government guidelines, so lenders can have their specific requirements. They usually have interest rates slightly higher than conventional loans too. When you’re borrowing a large loan amount, even 1/8th of a point difference can make a difference of thousands of dollars in interest.



What if you Don’t Qualify for a Conventional Loan?

If you don’t qualify for a conventional loan, there are other options with more flexible guidelines including the government programs, FHA, VA, and USDA loans. You must meet certain guidelines to be eligible for these programs, but their underwriting requirements are more flexible.

FHA Loans

FHA loans are the most flexible loan program available today. You don’t need a specific income or to belong to a certain group to be eligible. Anyone who doesn’t qualify for conventional financing typically turns to the FHA program.

Its guidelines are more flexible including:

  • Minimum 580 credit score
  • Minimum 3.5% down payment
  • Maximum debt-to-income ratio of 43%
  • Proof you’ll occupy the home as your primary residence
  • Stable income and employment for 2 years

FHA loans have different loan limit guidelines, but like conventional loans, they rarely exceed the California 2022 conforming loan limits except in certain California counties.

VA Loans

VA loans are another government program, but they are for a limited audience. To be eligible you must have served in the military or be a spouse of a deceased military member who lost his/her life during service.

If you served enough time and have VA home loan benefits, you can use this beneficial loan program which doesn’t require a down payment and has no loan limits. As long as you can prove you can afford the payment and you have full entitlement, you may qualify.

VA loan guidelines are flexible like FHA guidelines including:

  • Minimum 620 credit score
  • Maximum 43% – 50% debt ratio
  • Proof you’ll occupy the property as your primary residence
  • Proof you have enough disposable income for your family size and location
  • Stable income and employment for 2 years
  • Proof of your VA entitlement

USDA Loans

One last government-backed loan is the USDA loan. This program is for borrowers with low to moderate-income and who will live in rural parts of California as determined by the USDA guidelines.

USDA loans don’t require a down payment and have flexible underwriting guidelines too including:

  • Minimum 640 credit score
  • Maximum 41% debt ratio
  • Proof you’ll occupy the property as your primary resident
  • Proof you don’t qualify for any other loan program
  • Stable income and employment for 2 years


How are FHA Loans Different from Conforming Loans?

Many people wonder what’s different between FHA loans and conforming loans. While they have many similarities, there are differences too including:

  • Conforming loans require higher credit scores than FHA loans. You can get an FHA loan with a credit score as low as 580, but you’ll need at least a 660 to get a conforming loan.
  • You can use conforming loans to buy any type of property including second homes or investment properties. To use FHA financing, you can only buy a primary residence (the home you’ll live in full-time).
  • FHA loans charge mortgage insurance for the life of the loan no matter your loan-to-value ratio. Conforming loans only charge mortgage insurance while you owe over 80% of the home’s value. Once you pay the loan balance down, you can request cancellation of the Private Mortgage Insurance.
  • FHA loans cater to borrowers with good buying power but whose credit score or credit history makes them an unlikely candidate for a conforming loan.
  • FHA loans have different loan limits than conventional loan limits. The FHA loan limit in most California counties is $356,352 and in high-cost counties, it’s $822,375, but this may change as we enter the new year as well.

Do Conventional Loan Limits Change?

Every year, the Federal Housing Finance Agency looks at conventional loan limits. They determine the conventional loan limit and high-cost limit in certain areas based on the median cost of homes in the nation and specific areas.

Bottom Line

The California conventional loan limits change annually – and they typically increase as we see with the California 2022 conforming loan limits. This makes it easier for borrowers with all qualifications to secure conventional financing.

Jumbo loans can be harder to secure because of the risk they involve. Only borrowers with great credit, low debts, and a lot of assets qualify, which rules out the general population. Fortunately, with higher conventional loan limits, loans are easier to get in California, making homeownership a reality for millions of people.