Conforming Loan Limits Explained

Conforming loan limits are limits on mortgage loans that conform to Government-Sponsored Enterprise guidelines. In other words, they are mortgage loans that conform to guidelines that govern the loans issued by Fannie Mae and Freddie Mac. All conforming loans come with a built-in limit on how much money each borrower may be able to get. The limits vary based on factors such as the size of the housing, average housing prices in the area and the year in which the loan was issued. In the wake of the 2008 economic downturn, the structure of the conditioning loan limits has been modified. This is why it is more important than ever for the borrowers to know what the conditioning limits are and what they can realistically qualify for.

Understanding Conforming Loan Limits

The conforming loan limits are set based on the average national home values in any given year. If the home values increase, the loan limits increase as well, but if the home values decrease, the conforming loan limits remain the same. Different types of housing have different limits--the more families who live in a home, the bigger the loan limit. If the borrower wishes to take out a second conforming loan, another set of limits comes into play, but this time, it's the same for all types of housing. It is always equal to 50 percent of the single-family home loan limit.

Basic Conforming Loan Limits

These are the standard conforming loan limits that apply in most parts of continental United States. As of 2010, the limits are:

  • Single-family homes' limit--417,000
  • Two-family homes' limit--$533,850
  • Three-family homes' limit--$645,300
  • Four-family homes' limit--$801,950
  • Second loan limit--$208,500

 High-Cost Areas Conforming Loan Limits

These conforming loan limits are designed to be more in line with housing prices in Metropolitan Statistical Areas--densely populated areas that include cities and their surrounding suburbs. The housing prices are usually significantly higher in those areas than they are in the rest of the United States. They are determined on county level, and some MSAs cover more than one county.

As of February 2010, the high-cost areas' conforming loan limits are

  • Single-family homes' limit--$729,750
  • Two-family homes' limit--$934,200
  • Three-family homes' limit--$1,129,250
  • Four-family homes' limit--$1,403,400
  • Second loan limit--$364,875

Traditionally, the above limits were the same for all high-costs areas. However, the 2008 stimulus package altered so that the limits are set based on each MSA's average housing prices rather than national averages. As the result, in many high-cost areas, the limits will be lower than the above-stated numbers. For more information, consult the loan limits look-up table available at Fannie Mae's official website.

Conforming Loan Limits Outside Continental United States

Alaska, Hawaii, Guam and the Virgin Islands have both basic and high-cost mortgage area conforming loan limits (depending on the area), but those limits are significantly higher than they are in continental United States. As of 2010, the basic loan limits area:

  • Single-family homes' limit--$625,500
  • Two-family homes' limit--$800,775
  • Three-family homes' limit--$967,950
  • Four-family homes' limit--$1,202,925
  • Second loan limit--$312,750

Meanwhile, the high-cost area limits are:

  • Single-family homes' limit-- $938,250
  • Two-family homes' limit--$1,201,150
  • Three-family homes' limit--$1,451,925
  • Four-family homes' limit--$1,804,375
  • Second loan limit--$469,125
blog comments powered by Disqus