Conforming loan

In the United States, a conforming loan is a mortgage loan that conforms to GSE (Fannie Mae and Freddie Mac) guidelines.^[1] The most well-known guideline is the size of the loan, which, for 2019, was generally limited to $484,350 for single family homes in the continental US.^[2] Other guidelines include borrower's loan-to-value ratio (i.e. the size of down payment), debt-to-income ratio, credit score and history, documentation requirements, etc.^[3]

In general, any loan that does not meet guidelines is a non-conforming loan. A loan that does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.^[1]

History[]

Starting in 1970, Fannie Mae was authorized by the United States Government to purchase residential mortgage loans. Fannie Mae worked with Freddie Mac to develop uniform mortgage documents and national standards for what would come to be known as a conforming loan.^[1]

Importance[]

Fannie Mae and Freddie Mac are continuously in the market for conforming loans; because of this, conforming loans benefit from greater liquidity than non-conforming loans.^[1]

Criteria[]

The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limits that dictates the mortgages that Fannie Mae and Freddie Mac can buy.^[4] The maximum loan amount is set based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.)

A temporary increase in the Conforming Loan Limits for high-cost areas of living was incorporated into the 2008 economic stimulus package. Congress authorized an increase of the single family residences limits to the lesser of $729,750 or 125% of the median home value within a metropolitan statistical area (MSA). The new Jumbo-Conforming program was adopted by Fannie Mae and Freddie Mac effective from April 1, 2008 until December 31, 2010.^[5] The bill was signed into law by President Bush on February 13, 2008,^[6] but the new rates were not being honored by any lenders (as of March 30, 2015).

The general loan limits for 2017 increased and apply to loans delivered to Fannie Mae in 2017 (even if originated prior to 1/1/2017). This was the first time the base loan limits had increased since 2006. 2018 and 2019 saw a further increase.^[2]

Conforming Loan Limits[]

Per Fannie Mae:^{[7][8][9][10]}

*Counties considered a High Cost Area are listed below:^[11]

References[]