What is the Conforming Loan Limit?
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The conforming loan limit is the maximum size of a mortgage that Fannie Mae or Freddie Mac can finance. Conforming loan limits are used to keep prices stable in areas where home prices are relatively high.
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What is the Conforming Loan Limit?
In the United States, a conforming loan is a mortgage loan that conforms to finance industry standards. A conventional mortgage is not guaranteed or insured by the federal government, and it conforms to the standards set forth by Freddie Mac and Fannie Mae.
The maximum loan amount for a conforming loan changes each year. In 2020, the limit is $510,400 – but it can be more in some high-cost areas. For example, in Alaska, Hawaii, Guam and the U.S. Virgin Islands, the limit is $765,600. In 2021, the maximum loan amount will be $548,250 – but it could be more in some high-cost areas.
How is the Conforming Loan Limit Determined?
The Federal Housing Finance Agency (FHFA) is the government agency that determines the conforming loan limit for Fannie Mae- and Freddie Mac-backed home loans. The limit is reviewed and updated annually.
In general, the loan limit is set at 115% of the median home price in a given area, with a maximum of $453,100. For example, if the median home price in your area is $300,000, your conforming loan limit would be $345,250. However, if the median home price exceeds $453,100 (as it does in many high-cost areas), the limit would remain at $453,100.
You can use this tool to see what the conforming loan limit is in your area.
How Does the Conforming Loan Limit Affect Mortgage Lenders?
The conforming loan limit is the maximum allowed loan amount for conventional mortgages. In 2018, this limit is set at $453,100 for most areas of the country, but in high-cost areas the limit may be as high as $679,650. Conforming loans are those that meet the guidelines set forth by Freddie Mac and Fannie Mae, which are government-sponsored enterprises (GSEs) that buy and securitize mortgages.
The limit affects the size of the loan that a lender can offer you and also affects the rates you may be offered. The higher the limit, the more expensive a home you can buy with a conforming loan. In general, you’ll get a better interest rate with a conforming loan than with a non-conforming or jumbo loan because lenders perceive less risk with conforming loans.
Lenders must follow the conforming loan limits set by Freddie Mac and Fannie Mae. If they choose to lend above these limits, they’re considered non-conforming or jumbo lenders and their rates will usually be higher to offset the increased risk they’re taking on by lending to borrowers who may have trouble making larger payments.
If you’re shopping for a mortgage, knowing whether or not your loan will be considered conforming or non-conforming can help you save money on interest rates and avoid unnecessary hassle down the road.
How Does the Conforming Loan Limit Affect Borrowers?
The conforming loan limit is the dollar amount that determines whether a mortgage is considered a jumbo loan. In 2019, the limit is $484,350 for most of the United States (the exceptions are Alaska, Guam, Hawaii, and the Virgin Islands, where the limit is $726,525). This means that if you’re buying a house in one of these areas and your loan amount is higher than $484,350 (or $726,525 in Alaska, Guam, Hawaii, or the Virgin Islands), your mortgage will be considered a jumbo loan and will usually carry with it a higher interest rate.
How Does the Conforming Loan Limit Affect the Housing Market?
The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming or “jumbo loans” typically carry a higher interest rate than conforming loans. The current conforming loan limit for most of the United States is $484,350 for a single-unit home. That’s the “baseline” limit used for most parts of the country. Higher-priced real estate markets, like New York City and San Francisco, have different limits. In general, these limits are set at 115% of the median home price for the county in question.
The Federal Housing Finance Agency (FHFA) uses data from Freddie Mac’s Primary Mortgage Market Survey® (PMMS®) to calculate the national average price level for a single-family home. They review housing prices quarterly and announce any necessary changes to the loan limit in November of each year based on those calculations. The new loan limits are typically announced in conjunction with Existing Home Sales data.
The Conforming Loan Limit affects conventional refinance applications as well as home purchase loans. For example, if you’re buying a home in a high-cost market like San Francisco, the loan must not only meet Fannie Mae or Freddie Mac’s guidelines for creditworthiness and employment history — it must also fall below the local conforming loan limit (in this case, $726,525).
If you’re refinancing an existing mortgage that was issued when prices were lower and your loan amount is now above the local conforming loan limit, you may still be able to qualify for a conventional refinance but will need to do what’s called a “high balance” refinance instead. High balance loans are subject to stricter underwriting guidelines but can still offer favorable terms and rates if you meet all the requirements.
