When it comes to financing a home, lenders can provide home loans up to certain amounts, based on the type of loan the borrower is getting and the loan limits set forth by certain government agencies.
From the Federal Housing Finance Agency: “Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as the “conforming loan limit.” Loans above this limit are known as jumbo loans.”
Periodically, the powers that be will make changes to loan limits, so it’s not a bad idea to research current loan limits in your area before you delve into the process of shopping for a mortgage.
You may have already heard that 39 counties in the United States had their conforming limits increased for 2016. To see if your county is on the list, click here to be taken to the FHFA’s PDF spreadsheet.
In most areas of the United States, the conforming loan limit for 1-unit residential homes is $417,000. Any loans originated for more than this amount would have to be in the form of jumbo financing.
There are exceptions, of course. We already mentioned the 39 counties that got increases to their loan limits; however, there may also be differences depending on the location of the home as well as how many living units it has. For instance, a single-family home in a small town will likely have the $417,000 limit, while a 4-unit apartment building in Honolulu County may have a significantly higher limit.
In areas that are considered “high cost,” where real estate values and cost of living are significantly higher than everywhere else in the country the loan limits will likely be higher. For example, in San Francisco, the conforming loan limit for a single-unit home is $625,000. However, if you’re purchasing a multi-unit home, the limit will be higher. In San Francisco, the limit for 2-, 3- and 4-unit homes are $800,775, $967,950 and $1,202,925, respectively.
What about conforming limits for FHA loans?
In December 2015, the Federal Housing Administration (FHA) released its maximum loan limits for 2016. The limits were increased for 188 counties due to changes in home prices.
To view the list of counties that have new FHA loan limits for 2016, click here.
Every year, the FHA recalculates its loan limits based on 115 percent of the median home price in each area. There is no change to the FHA’s national loan limit “ceiling,” which will remain at $625,500 and the “floor,” which will remain at $271,050.
The FHA’s national loan limit “floor” is equal to 65% of the national conforming loan limit of $417,000. The “floor” applies to those areas wher 115 percent of the median home price is less than 65 percent of the national conforming loan limit.
If this all sounds a little too confusing, not to worry. You can use the HUD’s FHA Mortgage Limits Search feature to find the FHA loan limits in your area, or you can simply talk to your lender for more information. You don’t necessarily need to know all the ins and outs of loan limit calculation, but it does help to know the specific limits for your area and your loan program.