Conforming loan limits are the maximum amount that Fannie Mae and Freddie Mac will pay a lender for a mortgage. They change according to the median cost of homes in a given year and are generally easier to obtain and offered at lower rates. Freddie Mac and Fannie Mae set standards for conforming loans, including loan limits and borrower criteria.
In the United States, a conforming loan limit is the maximum dollar amount that Fannie Mae and Freddie Mac, the largest mortgage buyers in the United States, will pay a lender for a mortgage. These limits apply to conforming mortgages, which are loans that meet criteria set by Freddie Mac and Fannie Mae. Conforming loan limits are not fixed values. Instead, they change according to the median cost of homes in a given year.
To understand the limits of conforming loans, a person must first learn about Freddie Mac and Fannie Mae. While these names may describe two people, they are actually names of federal corporations. Freddie Mac is the Federal Home Mortgage Loan Corporation and Fannie Mae is the Federal Federal Mortgage Association. Freddie Mac purchases conventional mortgages from insured financial institutions and mortgage bankers who are approved by the Department of Housing and Urban Development (HUD). Fannie Mae buys and sells not only conventional mortgages, but also loans from the Veterans Administration (VA) and the Federal Housing Authority (FHA) Administration.
Both organizations help make it easier for people to get mortgages. Essentially, lenders are generally more willing to make conforming loans because they can sell them to Freddie Mae or Fannie Mac and then have more money to make additional loans. When it comes to buyer benefits, conforming loans are generally offered at lower rates and are generally easier to obtain.
Freddie Mac and Fannie Mae set standards for conforming loans, including loan limits and borrower criteria. To set conforming loan limits, Freddie Mac and Fannie Mae consider the median home price in a given year and then set mortgage loan maximums. If a loan falls within these limits, it is called a conforming loan. Loans that do not fall within the current limits are called non-conforming loans.
When Freddie Mac and Fannie Mae set conforming loan limits, they set maximum dollar amounts for the loans they purchase from lenders. For example, in any given year, the conforming loan limit may be $417,000 United States Dollars (USD). However, there are exceptions to these maximums, and Fannie Mae and Freddie Mac set different conforming loan limits for mortgages offered in areas with high housing costs. In such areas, the conforming loan limits can be much higher. As such, a person reviewing the current limits will see separate figures for the high cost and general area limits.
While the term conforming loan limit is generally used in the United States, other countries may use it, or similar language, as well. In such a case, it basically means the limit set for government-backed mortgages. These limits will be different from those established in the United States.
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