All About the Conforming Loan Limit

If you’ve ever been in the market for a new home, you might have heard terms like “conforming limit” or “jumbo loan” thrown around. This might seem like just another regulation or a hoop you have to jump through, but it’s really very simple to understand when broken down.

What is the Conforming Loan Limit?

Simply put, the conforming loan limit is the largest possible mortgage amount that Fannie Mae and Freddie Mac will purchase. Anything above that amount is a jumbo loan. Conforming loans also include other criteria, such as credit and income requirements.

Fannie Who? Freddie What?

Before we can get into the conforming loan limit, we have to mention the companies that this limit applies to. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), or private companies that receive support from the federal government, that provide easy access to funds, or liquidity, to the mortgage industry. Once a mortgage is originated, the lender sells it to a GSE like Fannie Mae or Freddie Mac, which then frees up their funds so they can originate more mortgages. In mortgage speak, this behind-the-scenes action is known as the secondary market.

That said, to ensure security for all parties involved, the Federal Housing Finance Agency (FHFA) sets a limit for how much any given loan can be for Fannie Mae or Freddie Mac to purchase it. Most recently, the FHFA set the 2019 single-unit conforming loan limit at $484,350. (This limit is slightly higher in high-cost areas of the country.) The biggest benefit of a taking out a conforming loan is that your interest rate will likely be lower, which means lower monthly payments and less money spent over time.

Jumbo Loans

If a loan amount exceeds the conforming loan limit, it is considered non-conforming or “jumbo.” Have no fear – if the price of your dream home is higher than the conforming limit, you can still get a mortgage! There are just different guidelines and regulations; for instance, you might have a higher interest rate and down payment requirement.

What’s in a Name?

We know what you’re thinking: Where do Fannie and Freddie get those awesome names? Are they named after a brother-sister duo of tycoons that ruled the financial industry in the early 1900s? Unfortunately, the backstory isn’t that elaborate. Fannie Mae’s real name is the Federal National Mortgage Association, or FNMA. FN for “Fannie,” and MA for “Mae.” (Say it aloud, you’ll see the connection.) Same goes for Freddie Mac – he’s really the Federal Home Loan Mortgage Corporation or FHLMC (F for “Freddie,” and MC for “Mac”).

2019 Conforming Loan Limit: What Does This Mean?

The FHFA has increased the loan limit from $453,100 in 2018 to $484,350 for 2019. What does this mean for homebuyers? An increased limit has several benefits. First, homebuyers can purchase a more expensive home, but remain within the conforming loan limits, and possibly get a lower rate. Or, if your current mortgage is considered “jumbo,” but is now within the conforming limits, you can refinance for a lower rate and possibly drop mortgage insurance premiums, too. Current borrowers also have the opportunity to potentially combine a first and second mortgage now that the conforming limit has increased.

Conforming or not, a Waterstone Mortgage loan professional can help you choose the loan program that best fits your needs. Contact us today to learn more.

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