The conforming loan limits are set by the Federal Housing Finance Agency (FHFA) and government-sponsored enterprises (Fannie Mae and Freddie Mac) and apply to all lenders. Conforming loan limits are updated annually based on changes in property values. The more property values increase over the course of the year, the higher the conforming loan limits. New loan limits are usually announced in December and go into effect the following January. As outlined in the table below, conforming loan limits vary by number of units in a property, up to a maximum of four units. Single-unit properties have the lowest limit.
Lenders are able to sell mortgages that do not exceed the conforming loan limit to the government-sponsored enterprises which allows lenders to offer you their best terms including the lowest interest rate and fees. Many low down payment mortgage programs also use the conforming loan limit to determine the maximum mortgage amount you are eligible for according to program guidelines.
Mortgage amounts fall into three categories: conforming, super conforming and jumbo loans. We outline the three loan amount categories below and explain how your loan size impacts your mortgage rate, program eligibility and other borrower qualification requirements.
Loans with conforming loan amounts are typically eligible for all conventional and government-backed mortgage programs. Some no or low down payment mortgage programs allow conforming jumbo or super conforming loan amounts in higher cost counties while other programs set the maximum loan amount at the general conforming loan limit. You should check with your lender to determine if your mortgage program applies loan limits.
Additionally, for conforming mortgages, lenders typically require the borrower to demonstrate the ability to repay the mortgage according to Qualified Mortgage guidelines.
As outlined in the table below, there are two sets of loan limits within each geographical category – general conforming loan limits and high cost area conforming loan limits. If you live in a county with higher average home prices, also known as a high cost area, then the conforming loan limit may be higher than $726,200. If your loan amount is greater than the general conforming loan limit but less than the limit for your county then this is called a conforming jumbo mortgage or super conforming mortgage. The mortgage rates for conforming jumbo loans may be slightly higher than the interest rates for conforming mortgages, although sometimes they are the same, depending on market conditions.
You usually see more variation in interest rates and loan terms for jumbo mortgages as lenders have greater flexibility in setting pricing and borrower qualification guidelines as compared to conforming mortgages. This dynamic creates competition between jumbo mortgage lenders and borrowers can benefit from this competition by comparing multiple proposals and negotiating the best terms for their loan.
The maximum LTV ratio for jumbo mortgages usually 80% - 90%, although borrowers may pay a higher mortgage rate or private mortgage insurance (PMI) if your LTV ratio is more than 80%. Additionally, the LTV ratio limit may be lower for larger loan amounts. Borrower credit score requirements for jumbo mortgages are usually higher than for conforming loans. Lenders typically require that jumbo borrowers have a minimum credit score of 680 - 720. Lenders may also apply a lower maximum LTV ratio for borrowers with lower credit scores. Most jumbo mortgages are not eligible for conventional and government-backed low down payment programs.
The table below outlines the general and high cost area conforming loan limits by the number of units in the property. Properties with more than one unit have higher loan limits.
The table below shows interest rates and fees for conforming mortgages. We recommend that you contact multiple lenders in the table below to compare mortgage proposals. Comparing loan terms is the best way to save money on your mortgage.
"FHFA Announces Conforming Loan Limits for 2023." FHFA. Federal Housing Finance Agency, November 29 2022. Web.About the author