Understanding Conforming and Jumbo Loan Limits

You might come across terms such as “conforming loan,” “non-conforming loan,” and “jumbo loan” when you're shopping for a mortgage. These terms relate to mortgage loan amount limits. Conforming loan limits are set by the federal government, but non-conforming loans are not. A jumbo loan is a type of non-conforming loan that can be used to buy a more expensive home.

Knowing whether you need a conforming or non-conforming loan matters because that can affect your mortgage financing options. Learning the lingo can help if you're shopping for a home loan or soon will be.

What Are Conforming and Non-Conforming Loans?

A conforming loan is a mortgage that adheres to maximum loan limits as set by the U.S. government. These limits are established annually by the Federal Housing Finance Agency (FHFA).

Conforming loans also follow underwriting guidelines set by Fannie Mae or Freddie Mac. These government-sponsored enterprises (GSEs) guarantee most mortgages in the U.S. Generally speaking, conforming loans are easier to qualify for a carry lower interest rates because they have backing from Fannie Mae and Freddie Mac.

Non-conforming loans don't follow the conforming loan limit guidelines. Your ability to qualify for a non-conforming loan, the amount you can borrow, and the interest rate you'll pay can vary from lender to lender.

What Are Jumbo Loans?

A jumbo loan is a mortgage that exceeds the FHFA loan limits. It can be either conforming or non-conforming. Jumbo loans can be more expensive and have higher down payment or credit score requirements compared with mortgages that meet conforming loan limits.

The FHFA sets conforming loan limits and jumbo mortgage limits by county. Some states follow the same limit for all their counties, while others have individual limits for different counties. You'd follow the regular conforming or jumbo loan limits unless a different threshold is specified.

The FHFA applies higher limits to certain high-cost areas of the country. Special statutory provisions also require different loan limits for Alaska, Hawaii, Guam, and the U.S. Virgin Islands to account for rising home values there. The Department of Housing and Urban Development (HUD) offers an online lookup tool that you can use to check the conforming loan limits or jumbo loan limits in a given county.

2021 and 2022 Conforming Loan Limits

The Housing and Economic Recovery Act (HERA) requires that baseline conforming loan limits be adjusted annually to reflect changes in average home prices in the U.S. The regular conforming loan limit set by the FHFA was $548,250 in 2021 for one-unit properties in most areas, increasing to $647,200 in 2022. The maximum limit for certain high-cost areas was $822,375 in 2021, increasing to $970,800 in 2022.

The baseline matches the regular conforming loan limit mentioned above in most U.S. counties. This chart highlights some of the counties where they're above the baseline as of 2022.

Areas that have higher conforming loan limits are ones that tend to have higher home values. You would most likely be subject to the regular conforming loan limits if you don't see your specific county listed here.

Jumbo Loan Restrictions

You might need a jumbo loan to close the deal if you're planning to buy a house that's valued above the conforming loan limit for your county.

Say you want to buy a home in San Francisco, where the typical home value was more than $1.5 million as of January 2022. Even though the high-cost-area conforming loan limits apply here, they're still well below the median home value. So you may need a jumbo loan to make it happen if you want to buy.

Keep in mind that jumbo loans may require that you put more money down. You may need 30% or more as a down payment instead of 20%. Lenders may also require that you have a higher credit score to qualify.

Should You Get a Jumbo Loan?

A jumbo loan could make sense if you plan to buy a more expensive home and you need to borrow more than what's allowed under the conforming loan limits, but consider a few things before going forward with a jumbo loan:

• How likely are you to qualify, based on your credit history, income, and current debt?
• How much can you afford to spend on mortgage payments each month?
• Can you keep up with the other costs of owning a home, including property taxes, homeowners' insurance, and maintenance?
• What cash resources do you have available to make the down payment and pay closing costs?

Consider which way home values are trending in the area you're planning to buy in as well. You may want to apply for a jumbo loan sooner rather than later if home values are increasing steadily. But you may be better off waiting until prices stabilize if home values seem likely to decline.

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