Conventional Conforming Loan Limits

Orion’s experienced brokers know that conventional conforming loan limits (think Freddie Mac and Fannie Mae, aka the GSEs, or Government Sponsored Enterprises) are officially announced right around Thanksgiving to Orion and the rest of the industry. But Orion’s management and AEs feel that it is important for our broker clients to know what, and why, they are.

“Conventional Loans” are defined as any mortgage that isn’t insured by a government agency. “Conforming Loans” are simply a conventional loan program that conforms to criteria set forth by Fannie Mae, Freddie Mac, and the FHFA,which is their regulator.

Every year the loan limits are reviewed and adjusted according to the home values across the country by the FHFA. Conforming loan limits are adjusted to reflect changes in the housing market, ensuring the average homebuyer can still obtain a conventional mortgage, even as housing costs rise. The FHFA, which oversees Freddie & Fannie, determines the loan limits with its House Price Index report which tracks the average increase in home values over the year and then adjusts the loan limit accordingly.

A permanent formula was established under the Housing and Economic Recovery Act of 2008 (HERA). If you’re interested, look for Section 1124, pages 39-40. Since the creation of the conforming mortgage products in 1980 (with an original limit of $93,750) until 2006 there had never been a year without an increase in the loan limit (save for a $150 decline in 1990). From 2006 to 2016, the limit remained at $417,000. In 2008, as a reaction to the severe decline in real estate sales and values, FHFA created the “high-balance” or “conforming jumbo” products for the GSEs, which have slightly stricter underwriting guidelines, higher loan limits, and higher costs/rates.

Given the appreciation that we’ve seen in single-family homes during the pandemic, limits have really shot up: in 2020 it was $548,250, went $625,000 for 2022, and for 2024 appears heading to $750,000 despite misleading headlines claiming falling real estate values.

Loan limits determine the approval guidelines for mortgages within the loan limit range. “Conforming,” or “conventional,” mortgages are funded by Orion and other lenders and sold to either Fannie Mae or Freddie Mac (the GSEs), which then pool mortgages and create MBS and sell them to investors. Lenders approve and fund conforming loans using guidelines established by either Fannie or Freddie (there are some slight variances). If a mortgage fits the guidelines and is done in a compliant manner, it can be purchased by the GSE or by an aggregator who will in turn sell it to F&F. Investors purchase MBS from either Fannie or Freddie know that their investment meets the criteria required by the issuing GSE. Loan limits are set to ensure the GSEs are facilitating financing for families that can benefit the most from lower down payment and lower interest rate mortgages.

Your client needing a mortgage can benefit from easier underwriting standards and possibly a lower rate from a high-balance conforming mortgage instead of a “jumbo” mortgage. Higher loan limits enable your clients to afford a higher-priced home, or the same-priced home with a smaller down payment. This also has the effect of putting upward pressure on home prices or dampening any slowdown in prices.