Jumbo Loans…what are they?

What Is A Conforming Mortgage “Loan Limit”?…and what does this have to do with “jumbo loans”?

A “conforming mortgage” is so named because its loan traits — quite literally — “conform” to the loan rules set forth by Fannie Mae or Freddie Mac.

Fannie’s and Freddie’s mortgage guidelines are dense, covering thousands of home loan traits, but there is one over-reaching rule — neither Fannie Mae nor Freddie Mac will securitize a mortgage that’s considered “too big” for its books.

Defining “too big” is an annual decision-making process based on the economy and home price data. The debate results in a “loan size limit”; the maximum amount of mortgage that Fannie and Freddie will allow, per their respective home loan guidelines.

Loan sizes up to these maximum amounts can be conforming mortgages. Loan sizes beyond the conforming loan limit are often considered “jumbo”.

2012 Conforming Mortgage Loan Limit : $417,000 (Or More)

2012 conforming loan limits are the same as in from 2011, 2010, 2009, 2008, 2007 and 2006.

Home prices are lower today as compared to 6 years ago, but maximum loan sizes are not; and this makes more homes eligible for Fannie Mae/Freddie Mac financing. For home buyers, this is a good thing because Fannie Mae- and Freddie Mac-backed loans are often the “cheapest” form of financing in terms of monthly mortgage payment.

Loan limits staying steady is good for existing homeowners, too, because, should conforming loan limits ever fall, scores of households would be immediately “loan-sized out” from the refinance market.

This includes HARP mortgage applicants who, in theory, have the most to gain from elevated conforming mortgage loan limits.

The 2012 conforming loan limits vary by property-type. With more “units” per property, conforming loan limits rise.  The classification “1-unit home” includes single-family residences of all types —  detached homes, row homes, townhomes, condos and co-ops.

1-unit properties : 2012 conforming loan limit of $417,000

2-unit properties : 2012 conforming loan limit of $533,850

3-unit properties : 2012 conforming loan limit of $645,300

4-unit properties : 2012 conforming loan limit of $801,950

Note that these limits are for conforming mortgages only. FHA loan limits — including for the FHA Streamline Refinance — use different scale.