Difference Between Conforming Mortgage Loan and Jumbo Mortgage Loan

2009 December 27

Conforming Loan is a mortgage loan that conforms to GSE (Fannie Mae and Freddie Mac) guidelines. Any loan which does not meet guidelines is a non-conforming loan. A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan.

Jumbo Loan is a mortgage loan with an amount above the industry-standard definition of conventional conforming loan limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac.

Loans above the conforming limits may be offered by seller servicers of these wholesale institutions, as well as Wall Street conduits who provide warehouse financing for mortgage lenders.

The loan amounts reflect average loan sizes nationwide. Jumbo mortgages apply when agency limits don’t cover the full loan amount. Fannie Mae and Freddie Mac are large agencies that purchase the bulk of residential mortgages.

As of 2010, the conforming loan limit for a single family home is $417,000, or $625,500 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

Other large investors, such as insurance companies and banks, step in to fill the need, with maximum mortgage amounts going to the $1 million or $2 million range.

A loan in excess of $650,000 is referred to as a super jumbo mortgage. The average interest rates on jumbo mortgages are typically greater than is normal for conforming mortgages.

Mortgage Loan Resell

Fannie Mae and Freddie Mac buy mortgages from lenders, package them together and resell them to investors. The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Criteria include debt-to-income ratio limits and documentation requirements.

Both Fannie Mae and Freddie Mac only buy mortgage loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. Non-conforming loans are harder for lenders to sell, thus jumbo loans would cost more to the borrowers.

Conforming Loan Limits

Year Historical Conventional Loan Limits High Cost Area
Single Family Two Family Three Family Four Family Second Loan Single Family
2010 $ 417,000 $ 533,850 $ 645,300 $ 801,950 $ 208,500 $ 625,500
2009 $ 417,000 $ 533,850 $ 645,300 $ 801,950 $ 208,500 $ 625,500
2008 $ 417,000 $ 533,850 $ 645,300 $ 801,950 $ 208,500 $ 625,500
2007 $ 417,000 $ 533,850 $ 645,300 $ 801,950 $ 208,500 $ 625,500
2006 $ 417,000 $ 533,850 $ 645,300 $ 801,950 $ 208,500 $ 625,500
2005 $ 359,650 $ 460,400 $ 556,500 $ 691,600 $ 179,825 $ 539,475
2004 $ 333,700 $ 427,150 $ 516,300 $ 641,650 $ 166,850 $ 500,550
2003 $ 322,700 $ 413,100 $ 499,300 $ 620,500 $ 161,350 $ 484,050
2002 $ 300,700 $ 384,900 $ 465,200 $ 578,150 $ 150,350 $ 451,050
2001 $ 275,000 $ 351,950 $ 425,400 $ 528,700 $ 137,500 $ 412,500
2000 $ 252,700 $ 323,400 $ 390,900 $ 485,800 $ 126,350 $ 379,050
1999 $ 240,000 $ 307,100 $ 371,200 $ 461,350 $ 120,000 $ 360,000
1998 $ 227,150 $ 290,650 $ 351,300 $ 436,600 $ 113,575 $ 340,725
1997 $ 214,600 $ 274,550 $ 331,850 $ 412,450 $ 107,300 $ 321,900
1996 $ 207,000 $ 264,750 $ 320,050 $ 397,800 $ 103,500 $ 310,500
1995 $ 203,150 $ 259,850 $ 314,100 $ 390,400 $ 101,575 $ 304,725
1994 $ 203,150 $ 259,850 $ 314,100 $ 390,400 $ 101,575 $ 304,725
1993 $ 203,150 $ 259,850 $ 314,100 $ 390,400 $ 101,575 $ 304,725
1992 $ 202,300 $ 258,800 $ 312,800 $ 388,800 $ 101,150 $ 303,450
1991 $ 191,250 $ 244,650 $ 295,650 $ 367,500 $ 95,625 $ 286,875
1990 $ 187,450 $ 239,750 $ 289,750 $ 360,150 $ 93,725 $ 281,175

Limits for Alaska, Hawaii, Virgin Islands and Guam are 50% higher. Virgin Islands was designated a high cost area in 1992 and Guam in 2001.

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