The conforming loan limit has increased from $548,250 to $625,000. What does this mean for you? We sat down with one of our preferred Lenders, Marty Meade at Main Street Loans to get her insight on the positive impacts this increase will have on our buyers.
What is a conforming loan?
A conforming loan is a loan that meets the requirements to be purchased by Fannie Mae or Freddie Mac. The most noteworthy criteria is the loan amount. Basically, a conforming loan is a home loan that doesn’t exceed a certain dollar amount. Each year this dollar amount is adjusted to reflect the average sales price for home sales over the previous year.
What happens if I need to borrow more than the maximum dollar amount for a conforming loan?
This would require what is known as a jumbo loan. A jumbo loan is a home loan that is not eligible to be purchased by Fannie Mae or Freddie Mac and therefore the loan can have a higher maximum limit. With the ability to have a higher loan amount, there are also more restrictive requirements to qualify for a jumbo loan. A jumbo loan also has a higher interest rate than a conforming loan.
What does the increase of conforming loan limits mean for homebuyers?
The increase in maximum conforming loan amount means that homebuyers can borrow more money without having to be in a jumbo loan and instead, be in a conforming loan which offers increased flexibility with loan requirements and lower interest rates.
Conforming loan:
- limits the amount of money that a homebuyer can borrow to $625,000
- Has less restrictive loan qualifying criteria including the following: as little as 5% down payment, only 1 appraisal required, typically 1-3 months reserves required, a minimum credit score is 620, a lower interest rate when compared to a jumbo
Jumbo loan:
- Loan limits are significantly higher- typically $1-3 million
- More restrictive qualifying criteria including the following requirements: minimum 20% down payment, 2 appraisals required (increased cost for the loan), typically 18-24 months of reserves required, a minimum credit score is 700-720
What is the new conforming loan limit and when can buyers start taking advantage of it?
Historically, small adjustments were made to the maximum conforming loan limit that go into effect on January 1. As a result of increasing home prices in 2021, the changes that would normally go into effect on January 1, 2022, were made effective Oct 1, 2021. So, a homebuyer can take advantage of the new loan limit of $625,000 as early as Oct. 1, 2021. This is an increase from the maximum conforming loan limit of $548,250, which went into effect on January 1, 2021.
What is one piece of advice you’d give to a homeowner looking to buy a new construction home?
Work with a preferred lender! Each builder and each community has unique characteristics that can affect your loan type and loan process. Having a lender who understands new construction will make the process easier for you so that you can focus on the amazing experience of building your new home.
What is your favorite part about being a preferred lender at Boone Homes?
Getting to help buyers and walking with them through the new construction process. Prior to becoming a lender, I sold new construction and still get excited watching a home go from a drawing on paper to a brand new home for buyers.
Fun Fact about yourself?
I am an animal lover and have 2 dogs named Dylan and Daisy and a cat named Romeo.
