Let’s talk this week about money. More specifically about borrowing money. Yes, Mortgage loans. In most counties across the country, Saline County included, the 2020 maximum conforming loan limit for a single-family home will be $510,400. That’s an increase of $26,050 from the 2019 baseline limit of $484,350. This marks the fourth year in a row that federal housing officials have raised the baseline.
What Is a Conforming Loan?
A conforming home loan is one that meets, or “conforms” to, certain guidelines set forth by Freddie Mac and Fannie Mae.
There are various criteria used to define a “conforming” mortgage product. But the size of the loan is one of the most important criteria, from a borrower’s perspective.
Freddie Mac and Fannie Mae will only purchase loans up to a certain amount. These maximum amounts, or limits, vary by county and are updated every year.
Why Are Loan Limits Increasing?
The new limits set by the FHFA reflect the rise in home prices across the country, making it easier for more borrowers to qualify for financing and achieve the goal of homeownership. According to the FHFA House Price Index report, home prices rose 5.38%, on average, between the third quarters of 2018 and 2019.* As a result, the baseline loan limit is increasing by the same amount.
Most Asked Questions
Loan limits tend to create confusion among home buyers, mortgage shoppers, and sometimes even lenders. Along those lines, here are straight answers to some of the most asked questions about conforming loan limits.
What are conforming loan limits, exactly?
These limits represent the maximum size (dollar amount) for mortgage loans that can be acquired by Freddie Mac and Fannie Mae. If a lender wants to sell its home loans to either of these organizations via the “secondary mortgage market,” then they need to ensure they meet all of the requirements used by Fannie and Freddie. In other words, they must “conform” to those standards — hence the term.
Is a “conforming” loan the same thing as “conventional”?
The terms “conforming” and “conventional”are sometimes used interchangeably. But these two adjectives mean different things, and sometimes they overlap. A “conventional” mortgage loan is one that does not receive any kind of government insurance, guarantee or backing. This distinguishes them from the government-backed home loan programs like FHA, VA and USDA. These programs each have their own limits. In fact, under the Blue Water Navy Vietnam Veterans Act of 2019, the Department of Veterans Affairs can now back loans that exceed the conforming loan limit. A “conforming” loan is simply a conventional mortgage product that meets or conforms to the size limits and other criteria used by Freddie Mac and Fannie Mae (the huge corporations that buy loans from lenders).
Can I borrow more than the 2020 conforming loan limit for my county?
Yes, but only if you have the income to support it. When a person borrows an amount that exceeds the conforming limit for the county where the home is located, it’s known as a “jumbo” loan. Mortgage lenders often have stricter criteria for such borrowers, since there is more money being loaned out and therefore a higher risk. Borrowers seeking a jumbo loan typically need to have better credit and larger down payments, compared to those who are applying for a smaller conforming mortgage.
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