New year, new conforming loan limits! But what are conforming loan limits and what do they mean for you as a homebuyer? These limits are a part of the mortgage process that helps to determine what kind of loan program will work best for your situation, but they are not often discussed in detail.

What are they?

Conforming loan limits are the maximum amount a mortgage loan can be for a specific program. This limit is determined by Fannie Mae and Freddie Mac - two authorities on the housing market. To determine the conforming loan limit, they look at the average home price and take factors like the housing market, inflation, and average household income into account. This limit is then announced by the Federal Housing Finance Agency (FHFA) and adjusted for certain locations and loan programs. Keeping your finance amount under the conforming loan limit helps you qualify for programs that often come with lower interest rates. A non-conforming loan comes with its own specific rules and challenges - like locking you out of certain loan programs or giving you a higher interest rate. The conforming loan limit changes for high-cost areas where the average home price is more than the national average. This limit also changes for FHA loans because these homes are often in rural or lower cost areas.

What are 2022’s numbers?

The FHFA announced that 2022’s conforming loan limit for conventional loans is $647,200. If your loan is more than this amount, you must follow some additional steps and your loan may be considered a “jumbo loan.” In higher cost areas, the ceiling limit is $970,800 - meaning that home loans in these areas can cost more, but must stay under their own threshold. The FHA determines a number that is typically 65% of the conforming loan limit because these loans often take place in more rural and lower cost areas. The FHA’s conforming loan limit for 2022 is $420,680. You can find a detailed map of qualifying loan limit areas here.

What does this mean for you?

The conforming loan limit acts as the threshold for conventional home loans. You can use this limit, along with your pre-qualification or pre-approval amount, to determine the target for your price range. Remember that amounts higher than the national conforming loan limit might come with additional steps or qualify you for a different loan program.

Conforming loan limits are created to help determine what the average home looks like throughout the country. This number will help you compare different loan programs and homes, as well as decide which program will work best for you. Your lender will help you navigate these limits and get you the best loan program for your situation. Feel ready to get your homebuying journey started? Contact an experience lender at Flat Branch Home Loans today!

Conforming Loan Limits for 2022