What are Loan Limits?
A conforming home loan is one that meets, or “conforms” to, certain guidelines set forth by Freddie Mac and Fannie Mae. Freddie and Fannie are government-sponsored enterprises that purchase mortgages.
When a loan meets the purchasing criteria used by Freddie and Fannie, it is said to be a conforming loan. There are various criteria used to define a “conforming” mortgage product and the size of the loan is one of the most important criteria.
Freddie Mac and Fannie Mae will only purchase loans up to a certain amount. These maximum amounts, or limits, vary by county and are updated every year.
FHA loan limits are also adjusted annually based on the median home values in the county where the property is located. As property values rise, so too can the FHA loan limit increase. These values are reviewed in the fall of each year and compare the average home price from the previous year to the current one. While loan amounts are based on affordability and debt to income caps, the loan limit only means that’s how high a loan can be and still be considered an FHA eligible.
FHA Loan Limits in 2019
The Department of Housing and Urban Development is the agency that makes the rules for FHA loans. They determine the maximum loan amount for an FHA loan in each county based on the median home prices.
Many people that obtain FHA financing obtain and apply the 3.5% minimum down payment requirement from down payment assistance, a gift, their own savings, etc. In 2018, the loan limit for FHA loans in Salt Lake County was $356,500. That means that $369,430 is the highest purchase price someone could buy at and still put 3.5% down.
Any purchase price higher than $369,430 would needed a dollar for dollar reduction so the base loan amount did not exceed $356,500. For example, a $400,000 purchase would require a $43,500 down payment which is great than 3.5% because the loan limit cannot be exceeded. Now, a $400,000 purchase in Salt Lake County is entirely possible with a 3.5% down payment because the loan amount would not be exceeded.
Conventional Loan Limits in 2019
This marks the third year in a row that federal housing officials have raised the baseline for conventional loans. Now a person can put 3% down as long as the loan does not exceed $484,350 (in the majority of the counties in the nation).
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