Understanding Conforming Loan Limits: What You Need To Know

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Author: Joseph Reinke, CFA

For young professionals looking to purchase their first homes, conforming loan limits are an important part of the home-buying process.  Understanding them is essential for making informed decisions.

This article will cover what you need to know about conforming loan limits – from what qualifies as a conforming mortgage limit to factors that influence these thresholds. Understanding this information can help you make better financial decisions when buying a house or refinancing your existing mortgage.

What are Conforming Loan Limits?

Conforming loan limits are the maximum amount of money a lender can lend for mortgages backed by Fannie Mae and Freddie Mac. These two government-sponsored enterprises (GSEs) purchase mortgage loans from lenders, package them into securities, and sell them to investors on the secondary market. Conforming loan limits are set annually by the Federal Housing Finance Agency (FHFA).

Definition of Conforming Loan Limits

The conforming loan limit is the maximum size for mortgages that can be purchased by Fannie Mae or Freddie Mac. In most areas of the country, this limit is $726,200 in 2023.

However, it may be higher in certain high-cost areas such as Hawaii or Alaska. The 2023 maximium even in high cost areas is $1,089,300.

The limit also varies depending on whether you’re buying a single-family home or a multi-unit property like a duplex or fourplex.  For example, the conforming loan amount for a duplex is $929,850.

Benefits of Conforming Loan Limits

For borrowers who qualify for conforming loans, there are several benefits associated with these types of mortgages.

For starters, they typically come with lower interest rates than nonconforming loans because they’re backed by GSEs and have more liquidity in the marketplace.

Additionally, since these loans meet certain criteria established by FHFA guidelines lenders view them as less risky investments than other types of financing options available to borrowers who don’t qualify for conforming loans.

Finally, many lenders offer discounted fees when borrowers opt for conforming loan products over nonconventional ones due to their lower risk profile and greater availability in the marketplace.  In short, underwriting is easy or more ‘streamlined.’ Therefore, the cost of getting the loan is cheaper relative to other options.

How to Calculate Conforming Loan Limits

To calculate your local area’s conforming loan limit, you’ll need to look up your county’s median home price according to data provided by FHFA each year.

Then multiply that number by 115% and round up any fractions if necessary until you reach an even dollar amount. This will be your local area’s conforming loan limit for that particular year.

The easier way is just to ask a mortgage lender such as Movement Mortgage or Neo Home Loans.

Key Takeaway: Conforming loan limits are the maximum amount of money a lender can lend for mortgages backed by Fannie Mae and Freddie Mac. Benefits include lower interest rates, less risk to lenders, discounted fees, and greater availability in the marketplace.

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Types of Loans That Fall Under the Conforming Loan Limit

The conforming loan limit is an important factor to consider when deciding which type of loan is best for you. Knowing the types of loans that fall under this limit and their respective benefits can help you make an informed decision.

FHA Loans

FHA loans are insured by the Federal Housing Administration and offer low down payment options for home buyers.

These loans are available to borrowers with lower credit scores, allowing them to qualify for a loan that falls within the conforming loan limit.

VA Loans

VA loans are guaranteed by the Department of Veterans Affairs and provide veterans with access to mortgage financing without having to make a down payment or pay private mortgage insurance (PMI).

The maximum amount that can be borrowed through this program is typically equal to or less than the conforming loan limit set by Fannie Mae and Freddie Mac.

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture and provide rural homebuyers with access to 100% financing on homes located in eligible areas as designated by Rural Development guidelines.

The maximum amount that can be borrowed through this program is typically equal to or less than the conforming loan limit set by Fannie Mae and Freddie Mac as well.

Next, we will look at factors that affect the maximum conforming loan limit.

Key Takeaway: When considering a home loan, there are several options available to potential buyers. FHA, VA and USDA loans all have conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo mortgages exceed these limits and require larger down payments while non-conforming mortgages are not backed by government agencies but come with stricter requirements including higher interest rates.

The Main Factor that Affects the Maximum Conforming Loan Limit

Knowing the factors that affect the maximum conforming loan limit can help you determine if a mortgage is right for you.

The maximum conforming loan limit is determined by a combination of factors, including location and cost of living.

Generally speaking, areas with higher costs of living will have higher loan limits than those with lower costs.

For example, if you live in an area where the median home price is $500,000 or more, then your conforming loan limit may be higher than someone who lives in an area where the median home price is less than $500,000.

Next, we’ll look at how to qualify for a conforming loan.

Key Takeaway: The conforming loan limit is determined by a combination of factors such as location, cost of living, average home prices in the area and interest rates. Higher costs of living and higher housing values tend to lead to larger loan limits.

How to Qualify for a Conforming Loan Limit Mortgage

Qualifying for a conforming loan limit mortgage can be an important step in securing the financing you need to purchase your dream home.

It is important to understand the credit score, debt-to-income ratio, and down payment requirements that are necessary to qualify for this type of loan.

Credit Score Requirements

A good credit score is essential when applying for any type of loan, including a conforming loan. Generally speaking, lenders prefer applicants with scores of at least 620 or higher. The higher your credit score, the better chance you have of being approved and getting a lower interest rate on your loan.

Debt-to-Income Ratio Requirements

Your debt-to-income (DTI) ratio is another factor lenders consider when evaluating your application for a conforming loan limit mortgage.

This ratio compares how much money you owe each month compared to how much income you earn in total each month. Most lenders prefer DTI ratios below 43%, although some may accept up to 50%.

One item to note for young professionals.  Your student loans loans matter when buying a house.  The type of repayment plan your on affects what you qualify for.  Therefore, you need to do research on this before you start the home buying process.

I also frequently get asked about mortgage points affecting the DTI ratio.  If you are paying points, the monthly payment used for the DTI is the actual monthly payment not what the payment would be if you didn’t pay points.

Down Payment

The amount of money required as a down payment will vary depending on the lender and other factors such as your credit score and DTI ratio. Typically, most lenders require at least 3% – 5% down but it is possible to find loans with no down payment requirement if certain conditions are met, such as having excellent credit or using an FHA insured loan program.

By understanding these requirements ahead of time, you can make sure that all necessary documents are prepared before submitting an application so that there won’t be any delays in processing it once received by the lender’s office.

Additionally, knowing what kind of qualifications are needed can help ensure that you get approved quickly and easily without encountering any issues along the way.

Key Takeaway: A conforming loan limit mortgage requires applicants to meet certain criteria, such as having a good credit score (at least 620 or higher), a debt-to-income ratio below 43%, and making at least 3%-5% down payment. I


In conclusion, conforming loan limits are an important factor to consider when applying for a mortgage.

Knowing the maximum amount you can borrow and understanding how changes in the limit can affect your finances will help you make more informed decisions about home ownership.

It is also important to be aware of what types of loans fall under the conforming loan limit and how to qualify for one so that you can maximize your borrowing potential while still staying within budget. With this knowledge, you’ll be better equipped to find a mortgage that meets both your financial needs and goals.

Joseph Reinke, CFA

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About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

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