A conforming loan is a type of home loan that has to follow specific guidelines. These guidelines are set by Government Sponsored Entities (or GSEs), such as loan providers like Fannie Mae or Freddie Mac. The loan amount is only one of the criteria needed to be classified as a conforming loan.
A High Balance loan, sometimes called a high-cost county loan, is slightly different from the standard conforming loan. These loan limits are derived from the average home prices of that particular county. These loans also have a ceiling of 150% of the baseline mortgage.
In 2008, the Housing and Economic Recovery Act mandated that the conforming loan limit be adjusted annually based on changes in average home prices. In 2020, the Federal Housing Finance Agency raised the maximum limit for single-family properties. These new limits apply to conforming loans that follow the GSEs’ guidelines.
The Federal Housing Finance Agency increases the limits every year, so rates are always changing. Loans that exceed the baseline amounts become jumbo loans. If you plan to take out a mortgage, be sure to stay up to date on loan limits.
If the loan reaches a limit that turns it into a jumbo loan, the requirements can change. Lenders may require:
✔ A higher credit score — 680 is the minimum for most jumbo loans
✔ More cash assets — Lenders want to see that you have cash and minimal debt
✔ A larger down payment — This varies depending on credit and financial history
✔ A second appraisal — A second opinion ensures the home is worth the loan amount
✔ Additional fees — More steps may mean higher closing costs
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In more expensive housing markets, conforming loan limits can be higher. While the maximum loan limit is based on the median value of surrounding homes, the FHFA still sets a maximum cap.
High-cost areas are counties in which 115% of the local median home value exceeds the current loan limits. These areas may see increases of up to 150%.
New loan limits apply only to new loans. They do not affect those who already have a pre-existing loan or have recently acquired one. If you're in the process, check with your lender.
Higher loan limits are an added value, allowing homebuyers to purchase more expensive homes while still staying within conforming loan thresholds.
Orange County is one of the highest-cost counties in California. This increases the maximum loan limit from $765,600 to $822,375, causing single-family home values to rise by 7.42%.
Related: 11 Cities You Can Buy a Home Under $150,000
In 2020, the loan limit was $510,400. In 2021, it was increased by over 5% by the Federal Housing Finance Administration, raising the average home value to $548,250 for conventional financing. In high-cost California counties, the jumbo loan limit rose to $822,375. Other regions may vary.
Most of the U.S. saw increased limits due to rising home prices. That means the cutoff for when a loan becomes a jumbo loan also increased. If you're financing a home near the cutoff, this change may work in your favor.
Some high-cost areas, including Hawaii, have even higher loan limits than those found in the continental U.S.
Looking for an independent mortgage expert? Mares Mortgage is ready to help.
The FHFA announces the max conforming loan limits. These limits apply to mortgages acquired by GSEs. For 2021, most conforming loan limits for single-unit properties were set at $548,250.
The baseline limit reflects current housing prices. The HERA Act requires annual adjustments to both baseline and loan limits.
January 2020 brought major changes for veterans. As of January 1, VA loan limits were removed, allowing veterans to obtain no-down-payment, VA-backed loans nationwide, regardless of local housing prices. The Department of Veterans Affairs can now back loans expected to exceed prior limits.
Related: Can You Buy a Home With No Money Down?
While the housing market fluctuates, homeownership remains within reach. Even those seeking jumbo loans have options. Knowing loan limits can help narrow your search.
Mares Mortgage is rated #1 in Orange County and known for convenient, reliable home loans. With two decades of experience, they’re ready to help you secure the right mortgage.
