A conventional mortgage is also known as a conforming or traditional home loan. These loans are generally considered safe because they have strict credit requirements, and interest rates are commonly fixed for 15 to 30 years.
Conventional mortgages are subject to loan limits that are set every year by the Federal Housing Finance Agency (FHFA) and are managed by the U.S. government-sponsored enterprises (GSEs) – Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). These organizations buy mortgages from lenders to hold in their own portfolios or to sell them to investors in the form of securities (guaranteed by the GSEs).
In most counties and states throughout the nation, the conforming loan limit shall not exceed $417,000. However, in some areas this amount can be subject to high cost living standards that allow these limits to go up to anywhere from $625,500 -$729,750, and as high as $938,250.
The general loan limits for 2016 are mostly unchanged from 2015 (e.g., $417,000 for a 1-unit property in the continental U.S.). But FHFA announced in November, 2015 that the maximum conforming loan limits would increase in 39 high-cost counties such as San Diego, California – Denver County, Colorado and King County, Washington. The full list of these counties can be found at this link.
Here are the 2016 conforming loan limits for conventional mortgages from Fannie Mae:
Maximum Original Principal Balance for 2016
|Units||Contiguous States, District of Columbia, and Puerto Rico||Alaska, Guam, Hawaii, and the U.S. Virgin Islands|
*Maximum Loan Limits for High-Cost Areas for Mortgages Acquired in Calendar Year 2016
2016 high-cost area loan limits have increased for 39 counties due to a high-cost area adjustment or the county being newly assigned to a high-cost area.
*Amounts shown below are maximum limits allowed by the provisions of the Housing and Economic Recovery Act of 2008. The specific high-cost area loan limits are established for each county (or equivalent) by FHFA. Lenders are responsible for ensuring that the original loan amount of each mortgage loan does not exceed the applicable maximum loan limit for the specific area in which the property is located.
|Units||Contiguous States, District of Columbia+||Alaska, Guam, Hawaii, and the U.S. Virgin Islands|
+Puerto Rico and a number of other states do not have any high-cost areas in 2016.
If you intend to borrow more money than the conforming loan limits listed above, you will need to apply for what is called a jumbo loan. A jumbo loan is a mortgage that exceeds the conforming limit and is not eligible to be guaranteed by Fannie Mae or Freddie Mac.
This loan is also known as a non-conforming loan because it doesn’t adhere to the standards and maximums that are set forth by Fannie Mae and Freddie Mac. You can find out more about jumbo loans at this link.