Conforming Mortgage Loans
A conforming mortgage, for sake of simplicity, is any loan amount up to $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 because of the perceived lower risk.
As a result, mortgages with conforming loan amounts tend to carry lower interest rates than jumbo loans because of their strong demand on the secondary market.
The conforming loan limit changes yearly, as determined by Freddie Mac and Fannie Mae, based on October to October housing price 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 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 $417,000, you can add a second mortgage behind it without breaking the conforming limit. Keep in mind, however, that second mortgages typically price higher than first mortgages.
Here are the conforming loan limits for other residential property types:
Two-unit properties: $533,850
Three-unit properties: $645,300
Four-unit properties: $801,950
High-Cost Conforming Loan Limits
Thanks to recent legislation, the conforming loan limit has risen to as much as $729,750 in some higher-cost areas in the United States until the end of 2008. These types of loans are often referred to as “conforming jumbo loans.”
However, beginning January 1, 2009, the so-called “high-cost conforming loan limit” will max out at $625,500 in the most expensive areas nationwide.
For two-unit properties, the new limit will be $934,200
For three-unit properties, the new limit will be $1,129,250
For four-unit properties, the new limit will be $1,403,400
For properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the loan limits are 50 percent higher.
