Conforming Mortgage Loans
A conforming mortgage, for sake of simplicity, is any loan amount under $417,000 for a single-family residence that fits guidelines set forth by Fannie Mae and Freddie Mac. Because these loans adhere to terms and conditions set by Fannie and Freddie, which include credit and income requirements, they are easily sold to investors in bulk on the secondary market. Conforming loan amounts tend to carry lower interest rates because of their strong demand on the secondary market, and their reduced perceived risk.
The conforming limit changes yearly, as determined by Freddie Mac and Fannie Mae, based on October to October data. The conforming limit has risen substantially in the last few years as housing prices have skyrocketed in the United States, and now most home loans in the metropolitan areas exceed the conforming limit.
Homeowners can avoid exceeding the conforming limit by breaking their loan up into a first and second mortgage. If you keep your first loan at say $416,999, you can add a second mortgage behind it up to $200,000 or more without breaking the conforming limit.
Here are the conforming limits for other residential property types:
Two-unit properties: $533,850
Three-unit properties: $645,300
Four-unit properties: $801,950
For properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the loan limits are 50 percent higher.
