A conforming loan limit is the maximum amount of money that lenders can provide to borrowers while still conforming to the guidelines set by government-sponsored enterprises such as Fannie Mae and Freddie Mac. These limits are established to ensure that loans are standardized and can be easily traded in the secondary mortgage market.
In the United States, the Federal Housing Finance Agency (FHFA) sets the conforming loan limits for conventional mortgages backed by Fannie Mae and Freddie Mac. These limits vary by location and are based on the median home prices in a particular area. In areas with higher home prices, the conforming loan limits are higher to accommodate the local real estate market.
Exceeding the conforming loan limit typically classifies a mortgage as a jumbo loan. Jumbo loans usually have stricter eligibility requirements and may carry higher interest rates because they are not eligible for purchase by Fannie Mae or Freddie Mac. Conforming loans, on the other hand, are considered less risky for lenders as they adhere to the established guidelines and can be sold more easily in the secondary market.
How Does it Work?
The conforming loan limit is determined by the county, and, in most cases, a baseline limit is assigned to the majority of counties. It’s essential to note that there are variations in conforming loan limits, particularly due to regional economic disparities.
For instance, the maximum loan limit is adjusted higher in areas where 115% of the local median home value surpasses the baseline conforming loan limit. Additionally, the Housing and Economic Recovery Act establishes the maximum loan limit for areas with elevated median home values.
When you apply for and secure a conforming loan, the following steps unfold: After the loan has been closed, the lender transfers it to either Fannie Mae or Freddie Mac for purchase. Subsequently, your documentation undergoes scrutiny, and the necessary procedures are carried out.
Conforming Loan Requirements
The requirements to secure a conforming loan are not that difficult to meet. However, some interested people ask, and I am more than happy to let you know. Here is what you need:
- A maximum credit score of 620.
- A maximum debt-to-income ratio of 45%.
- Minimum down payment of 3%.
- Maximum loan-to-value of 97%.
- Mortgage insurance.
However, remember that if you have a high credit score, residual income, or cash reserves, lenders will expect you to have a higher DTI ratio.
Conforming Loan Limits 2024
The baseline conforming loan limit for 2023 is $726,200, but in the United States, the conforming loan limit for 2024 will rise to $766,550. Moreover, this increase of $40,350 will affect housing prices in the country. Places in the United States with the highest-cost areas include Hawaii, the Virgin Islands, Alaska, and Guam. Additionally, when the announcement was being made, it was stated that the maximum conforming loan limit would be high in 2024, except in 5 U.S. counties.
Pros of This Type of Loan
There are a lot of benefits that you enjoy when you apply for a conforming loan. Instead of bombarding them all together, I will be listing them out:
- Access to various lenders.
- You do not have to worry about mortgage insurance.
- Low down payment.
- Easy to qualify for.
- Low interest rates.
- Higher consumer protection.
However, to be able to secure this type of loan, you need to have limits on debts, borrowing limits, and a higher credit score.
How To Get the Best Conforming Loan
You do not just land a good conforming loan; in other words, you need to put in the time and effort to get it. There are also various steps that you need to take to carry out this process. So, just follow the instructions and prompts to begin:
- Conduct a soft check on your credit score and report.
- Prepare all the necessary documents.
- Juxtapose the loan rates.
- Compare and check lenders’ ratings.
- Get pre-approved.
- Abstain from surplus spending.
With these steps, you will be able to secure a suitable loan for your needs. But remember that you also need to meet the requirements of the lending company.
The Best Conforming Loan Providers Online
A lot of things are now possible thanks to the internet, and technology plays a very important role as well. Unlike in the days when you had to visit the company physically to fill out the paperwork, now you can apply for a conforming loan from any company of your preference. Still, here are the best-conforming loan providers online:
- Bank of America.
- PenFed Credit Union.
- Wells Fargo.
- US Bank.
- Chase Bank.
- Navy Federal.
- Alliant Credit Union.
- Ally Bank.
- Guaranteed Rate.
- New American Funding.
- PNC Bank.
- Rocket Mortgage.
- Golden 1 Credit Union.
- Veterans United. Angel Oak Mortgage Solutions
So, if you want to get a good conforming loan with the best rates, these companies are what I recommend to you.