What Is a Conforming Loan?

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When you’re learning about mortgages, you’ll come across terms like “conventional” and “conforming.” All of this lingo can be confusing, so let’s clear up some of the mystery by outlining what you need to know about conforming loans (which are a type of conventional loan … so you’ve already learned that much!). 

There are different types of loans available to homebuyers. Some loans are backed by government agencies, such as the Federal Housing Administration (FHA) or the US Department of Veterans Affairs (VA). However, government-backed loans are far less common than private loans. 

These private loans, which aren’t backed by a government agency, are called “conventional loans.” Conventional loans can be either “conforming” or “non-conforming.” Conforming loans are more common. 

“Conforming” means the loan meets guidelines set by the Federal Housing Finance Agency (FHFA), which supervises and regulates Fannie Mae and Freddie Mac. These guidelines include limits for the loans that can be backed by, and may be acquired by, Fannie Mae and Freddie Mac. 

One of the most important guidelines is the conforming loan limit—the maximum amount of money that a homebuyer can borrow as a conforming loan. Other guidelines that affect whether a conventional loan is right for a particular homebuyer include requirements for minimum down payment, debt-to-income ratio, and credit score.

What about those non-conforming loans? The most frequently used type of non-conforming loan is a jumbo loan, so called because its amount is higher than the conforming loan limit. 

About the conforming loan limit

Every year, the Federal Housing Finance Agency (FHFA) sets a dollar amount as the upper limit for conforming loans. 

Based on the change in average US home price, this yearly limit is the maximum amount that a homebuyer can borrow to buy a home with a conforming loan. For most of the country, there is one consistent limit, called the “baseline limit.” 

The 2021 conforming loan limit 

For 2021, in most of the US, the baseline limit for one-unit properties is $548,250, up from $510,400 in 2020, a 7.4% increase. 

Remember that the limit is on the amount of the loan itself, not the price of the home you can use the loan to buy. If you subtract your down payment amount from the price of the home, you’ll get an idea whether a conforming loan is likely a good fit for you. 

The conforming loan limit and high-cost areas

The yearly limit reflects average home prices across the US and it also provides higher-than-baseline limits for areas where home prices are above average. Specifically, for counties where 115% of the local median home value is higher than the amount of the baseline limit, a limit is established based on that median (with a ceiling of 150% of the baseline limit). 

The 2021 limits (and their changes from 2020 limits) for areas where Flyhomes frequently works with homebuyers are below. 

King/Snohomish/Pierce Counties (WA)

2020: $741,750

2021: $776,250

Greater Bay Area (CA)

2020: $765,600

2021: $822,374

Los Angeles and Orange County (CA)

2020: $765,600

2021: $822,374

San Diego County (CA)

2020: $701,500

2021: $753,250

Boston (MA)

2020: $690,000

2021: $724,500

This national map from the FHFA shows limits by county. 

Why the conforming loan limit matters

You can spend more with a conforming loan in 2021 than you could in 2020, and that makes you more likely to avoid a jumbo loan. Jumbo loans come with more risk for lenders than conforming loans, so they’re more difficult to qualify for and typically have higher rates and fees than conforming loans. 

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