Conforming Mortgage

A conforming mortgage refers to mortgages that conform to government sponsored enterprise (GSE) guidelines. Making it eligible for purchase by Fannie Mae and Freddie Mac.

A loan that does not meet the guidelines is referred to as a non-conforming loan.

The guidelines cover a wide array of requirements including those for:

But the most notorious and well known of all is the limit on maximum loan amount.

A home loan that does not meet the guidelines specifically due to it’s size is known as a jumbo mortgage. They usually have an interest rate about 0.375% higher.

The implication of this is that a borrower needing a loan above the conforming limit will normally get a better deal by taking a conforming loan at it’s maximum, then take on a second loan for the rest.

For example, if $150,000 is needed and the ceiling is $100,000, the borrower might want to take the $100,000 conforming loan, and get the remaining $50,000 from another lender.

Common sense tells us that the size a house, or different types of houses, will have different ways to judge their market values.

For example, one cannot assume that just because a house is smaller in size means that it is worth less than a bigger house by default

So the conforming maximum limits are categorized into:

  • Single family
  • Two family
  • Three family
  • Four family
  • Second loan

For example, the loan limits in 2018 are $453,100, $580,150, $701,250, $871,450, and $226,550 respectively.

However, the authorities recognized that certain geographic areas are known to have higher real estate prices compared to others.

So the category of “High Cost Areas” is included as well.

The counties under this list of high cost areas will have higher conforming loan limits.