Understanding Conventional Conforming Loan Limits

couple-shaking-hands-with-loan-advisor-while-sitting-at-wooden-table-in-office

Conventional loans are those which are uninsured against loss by a government agency. These are the most common types of mortgage loans which may be used to purchase or refinance a home. There are both conforming and non-conforming conventional loans, both with different guidelines.

A conforming conventional loan is one in which the guidelines for qualification are set by Fannie Mae and Freddie Mac, the two non-governmental insurance agencies which are responsible for insuring most mortgage loans. A mortgage loan that is “non-conforming” does not follow these guidelines.

Where to Find Information on Loan Limits

Conventional loan limits are set on an annual basis by the Federal Housing Finance Agency (FHFA) in compliance with the Housing and Economic Recovery Act of 2008 which was signed into law by then-President George W. Bush. This legislation was specifically designed to address the housing crisis of 2008 which caused major disruption to millions of families across the United States.

The conventional loan limits are established based on the average home prices in a county. The limits range from $484,350 to $726,525 for single-family residences, depending on various factors. These numbers reflect the amount of a mortgage which is insured by one of the insurers.

Using Loan Limits to Make Decisions

Across California, loan limits vary depending on which county you intend to attempt to purchase a home. There are also different loan limits which are dependent on the type of property you intend to purchase. For example, those who are purchasing a single-family residence in Ventura can mortgage up to $713,000 and still have their mortgage insured. A four-family unit in Ventura can be insured for a mortgage of up to $1,371,150. However, a person who is intending to purchase a home in Fresno will not be able to secure an insured mortgage for any mortgage loan exceeding $484,350 for single-family residences, or $931,600 for a four-family residence.

Why Loan Limits Matter for Buyers

Typically, a lender will be more likely to lend money on a conforming mortgage because there is less risk for them. Having a mortgage which is insured by either Fannie Mae or Freddie Mac means that in the event the borrower should default, the lender is able to file a claim with the agency and will not lose money.

Another reason why loan limits matter is for the terms of the loan. Borrowers who can stay within the guidelines of a conforming loan will typically be able to get more favorable terms, including lower interest rates, fewer points, and better loan terms. Many conforming loans are offered with fixed interest rates and loan terms of 30 years. Conversely, a non-conforming loan may carry an adjustable interest rate and may be for a shorter time. The stability of a fixed-rate mortgage can be very helpful to borrowers since they know every month exactly how much their housing expenses will be in advance.

Individual Owners and Investors Treated Differently

One issue to be aware of is there are still significant differences in conforming loans for those who are purchasing a single-family home for their primary residence versus an investor who is purchasing the same home. Generally, investors will pay slightly higher rates, they may be required to put down a larger down payment, and their loan terms may not be as favorable.  There are also some loan insurance programs, such as Federal Housing Administration (FHA) for which investors are ineligible.

Whether you are an individual buyer or an investor, Pacific Mortgage Group can help you identify a loan that is right for your needs. We have extensive experience helping individual buyers and investors across California find the right mortgage loans, whether you are purchasing a new home or refinancing an existing mortgage. Contact us today at 1-800-691-1665 or fill out our pre-qualification application online today.