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Conforming Loan Limits

What is Conforming Loan Limit?

Conforming Loan Limits

Conforming loan limit (CLL) is the maximum principal loan amount above which Fannie Mae or Freddie Mac cannot purchase residential mortgage loans. Mortgage loans having principal loan amount at or below the conforming loan limit are known as conforming loans, while loans above the conforming loan limit are known as jumbo loans. The loan limits apply to the principal loan amount and not on the unpaid principal balance (UPB).

Conforming loan limits are determined by Federal Housing Finance Agency (FHFA), which is the regulator for Fannie Mae and Freddie Mac. FHFA determines the loan limits under the provisions of Housing and Economic Recovery Act (HERA). As a result, the limits are also known as HERA loan limits.

Implications for Borrowers

Conforming loan limits affects the interest rate that you will get on your loan. Other things equal, conforming loans are priced lower than the jumbo loans. Lower price may reflect in lower interest rate, points, or both. The reason for the lower price is because there is a ready market for conforming loans since they can be purchased by Fannie Mae and Freddie Mac. However, jumbo loans need participation from private lenders which affects the pricing you will receive.

Conforming Loan Limit Values

Conforming loan limits are determined for single family, two-unit, three-unit, and four-unit residential homes. Additionally, loan limits for Alaska, Hawaii, Guam, and US Virgin Islands are 150% (1.5 times) of the base loan limits.

There are three categories of conforming loan limits which are discussed below:

  1. Base Conforming Loan Limits: The base loan limits apply for most areas and are calculated based on the trends in the Home Price Index (HPI) values.
  2. High Cost Area (HCA) Conforming Loan Limits: Certain areas designated as High-Cost Areas have higher conforming loan limits, which can go up to 150% of the base loan limits. The HCA limits are calculated as per the provisions of the HERA and apply for loans were originated on or after October 1, 2011. These limits are also known as "permanent" high-cost area loan limits.
  3. Temporary Loan Limits: Loans originated between 7/1/2007 and 9/30/2011 are considered as conforming and eligible for purchase by Fannie Mae and Freddie Mac based on the limits determined in those years. These limits are also known as "temporary" high-cost area loan limits.

Current Conforming Loan Limit

The 2014 conforming loan limits were announced by FHFA on Nov 26, 2013 . The limits apply to loans acquired in calendar year 2014 and originated after 9/30/2011 or prior to 7/1/2007.

  • 2014 Conforming Loan Limits – All Areas

Base/General Conforming Loan Limits

The base conforming loan limits for 2014 are in the table below:

Base/General Conforming Loan Limits
Property Type All states except Alaska, Hawaii, Guam, and US Virgin Islands Alaska, Guam, Hawaii, and US Virgin Islands
1 Unit/SFR $417,000 $625,500
2 Unit $533,850 $800,775
3 Unit $645,300 $967,950
4 Unit $801,950 $1,202,925

Conforming Loan Limits for High Cost Areas

The loan limits are higher for the high cost areas and are determined separately for each area. The maximum potential loan limits for high cost areas is 150% of the base limits and presented in the table below. While the table below shows the maximum potential loan limits for high-cost areas, the actual loan limits for a specific area may be lower. See 2014 conforming loan limits to find out the CLL for all areas. Freddie Mac calls the loans that it purchases under the High Cost Area conforming loan limits as Super Conforming Mortgages.

Maximum Potential CLL for High Cost Areas
Property Type All states except Alaska, Hawaii, Guam, and US Virgin Islands Alaska, Guam, Hawaii, and US Virgin Islands
1 Unit/SFR 625,500 $938,250
2 Unit $800,775 $1,201,150
3 Unit $967,950 $1,451,925
4 Unit $1,202,925 $1,804,375
 
CHART

July 1, 2007 and September 30, 2011

Between July 1, 2007 and September 30, 2011, various laws were enacted where separate loan limits applied for high cost areas and the rest of the county. These were envisioned as temporary loan limits to address the concerns arising from the housing and credit crisis. The highest potential conforming loan limit for a single family home in a high cost area was raised to $729,750

The temporary loan limits (2007 – 2011) continue to be considered as conforming and can be purchased by Fannie Mae and Freddie Mac as per the limits established in these years. The primary reason is because the conforming loan limits for certain high cost areas was higher during 2007 to 2011 than the limits calculated under HERA from 2011. Therefore, the government allowed the loans that were conforming during 2007 – 2011 to continue to be conforming even after 2011. For example, the conforming loan limit for a single family home in Santa Clara, California (high cost area) was $729,750 in 2010. In 2014, the conforming loan limit for Santa Clara is $625,500. A loan originated in Dec 2010 in Santa Clara for $700,000 would be conforming in 2010 and even in 2014. Therefore, in 2014 Fannie Mae can buy this loan that was originated in 2010. Had the loan originated in 2014, then Fannie Mae would not be eligible to buy in 2014 as the maximum conforming loan amount is $625,000.

The laws under which the loan limits were calculated are below:

  • Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010 (Public Law PL111-88) established loan limits for loans originated between 1/1/2010 – 9/30/2011
  • American Recovery and Reinvestment Act of 2009 established loan limits for loans originated between 1/1/2009 – 12/31/2009
  • Economic Stimulus Act of 2008 established loan limits for loans originated between 7/1/2007 – 12/31/2008

October 1, 2011 and After

In 2008 HERA established a permanent system of having two set of conforming loan limits: (1) the base loan limits that apply for most of the country, and (2) higher loan limits that apply for high cost areas. The HERA limits apply for loans originated from October 1, 2011. The limits for high cost areas are also known as "permanent" high-cost area loan limits. The highest potential conforming loan limit for a single family home in a high cost area was $625,500.

Authority to Determine Conforming Loan Limits

The Fannie Mae and Freddie Mac used to determine the conforming loan limit till 2004. In 2004, the Office of Federal Housing Enterprise Oversight (OHFEO) took over the responsibility for establishing the conforming loan limits. On July 30, 2008, the Housing and Economic Recovery Act of 2008 combined OFHEO and the Federal Housing Finance Board (FHFB) to form the new FHFA. Since then, FHFA has the authority to determine the conforming loan limits.

External Links

  1. Link 1
  2. Link 2

Updated: Dec 20, 2013

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