What is a conforming loan?
A conforming loan is a loan that meets the requirements of the secondary market for loans. (Fannie Mae, Freddie Mac, etc.) By conforming to a set of national standards, loans can be approved much faster, and the loan pricing for consumers can be lower.
There is a loan amount limit that banks and other lenders must adhere to when approving these loans, and there is always an upper limit to the loan amount that can fit in the standard in a given area.
New Conforming Loan Limits for 2022 in Michigan
What is the 2022 conforming loan limit?
That limit for Michigan has been increased from $548,250 in 2021 to $647,200 for 2022.
For more expensive home purchases where the loan amount exceeds the conforming limit, the loan is termed a jumbo loan, the pricing is usually higher, and the qualification guidelines are generally stricter. For example, it was very difficult to find any jumbo loans with just 5% down recently. Something that almost every lender offered in a conforming loan.
Most years, the loan limit is adjusted upwards to track rising home prices.
This is Jon Boyd with The Home Buyer’s Agent. We are a real estate company that focuses on the home buying process and how we can help you make it easier to get into a home.
Let’s go ahead and dive into it today. We are talking about is the conforming loan limits that have increased to six hundred forty-seven thousand two hundred dollars.
What this means for you as the consumer is that your buying power becomes a lot greater; this allows you to stay out of those jumbo loan limits that have higher credit score criteria and increased pricing.
Here’s an example in Michigan where home values continue to climb up.
Let’s say we had a home where the purchase price was $700,000.
New Conforming Loan Limits for 2022 in Michigan
We know the max conforming loan amount last year in 2021 was $548,250.
Your down payment would have needed to be $151,750 to stay in the conforming loan range.
This year, with the same purchase price of $700,000, your maximum conforming loan amount of $647,200 would give you a down payment of just $52,800. That could work with a five percent down payment conforming loan. (It would have actually been more than five percent, but it would fit into the five percent down payment criteria lenders have.)
It is significant to think that with these increased loan amounts just in this situation alone, you will be able to keep about one hundred thousand dollars more in your bank account while still avoiding a jumbo loan.
There are a lot of other criteria involved, and the larger mortgage will mean a larger monthly payment. But, avoiding the jumbo market is a great benefit.
Note that the conforming loan limit can vary by area. This discussion is only about the Michigan limit and it is really important in some of the higher-cost areas we serve, like Bloomfield Hills, West Bloomfield, and Ann Arbor.
At The Home Buyer’s Agent, we look at strategies for minimizing your debt to where your house is the only debt or at the very least optimizing your loan for your needs.