Here’s the details: You can now borrow more and have your loan considered as “conforming.”
What is a conforming loan?
A conforming loan is one that meets all requirements of Fannie Mae and Freddie Mac, the quasi-government agencies that buy mortgages and provide the funding that keeps the mortgage market humming. The conforming loan limit is the maximum dollar mortgage amount that Fannie and Freddie will buy or guarantee. Mortgages that meet all the requirements of both agencies are known as conforming loans.
What’s the maximum I can borrow using a conforming loan?
Last year, the most you could borrow and still have the mortgage considered as “conforming” was $510,400.
In most of the U.S., the limit now increases to $548,250. However, some higher priced housing markets like California, New York, Boston and Washington D.C. have even higher limits. For example, the maximum conforming amount in Fairfax, Virginia is $822,375. (To see maximum amounts in markets across the country, see this map).
Can I borrow without using a conforming loan?
Of course, you can always borrow more than the limit, or borrow without using a conforming loan.
Mortgages that don’t meet the requirements of Fannie Mae and Freddie Mac are called nonconforming loans. You may also hear the term “jumbo loan” to refer to mortgages that exceed the conforming limit. Mortgages can be nonconforming for other reasons, as well. For example, borrowers whose credit history or income doesn’t meet the conforming standards may be offered a nonconforming loan.
What are the advantages of using a conforming loan?
Borrowing using a conforming loan has several advantages. It may have a lower interest rate and better terms than a nonconforming loan, and is often easier to obtain.
Mortgage lender Quicken Loans says that “conforming loans typically offer lower interest rates to borrowers with high credit scores, making them a great option if your goal is to get a low monthly payment.”
“Traditional lenders prefer to work with mortgages that fall within the conforming loan limits,” explains Quicken. “Fannie Mae and Freddie Mac insure these loans, so they’re safer for the lender to sell. They’re also easier for lenders to sell because they follow so many regulations.”
Another way that the new higher dollar limits on conforming loans help you is that the more you can borrow, the less you have to put down as down-payment. That may make it easier for you to afford the home of our dreams.
The Takeaway: With today’s competitive real estate market, the new rules can help you afford a new home and qualify for a great rate!