Any discussion regarding “conforming loan limits” should include an explanation as to what they are. Conforming loan limits are the guidelines that were established to determine the reasonable and allowable size of a loan. Those loan limits apply directly to the average prices for residential properties within a given geographic area. Currently, the majority of U.S. counties have a conforming loan limit of $417,000 for a one-unit property. In locations where real estate prices tend to be quite a bit higher than the U.S. average, such as in larger metros and coastal areas, loan limits can reach up to $721,050.
Along with the cost of real estate, conforming loans include evaluations to decide if a borrower is a good risk. Other considerations are the prospective borrower’s loan-to-value ratio or LTV, debt-to-income ratio, credit score and history, and other documentation requirements such as employment verification and tax information. As the entity that oversees Freddie Mac and Fannie Mae, the Federal Housing Finance Agency, or FHFA is the one that sets the conforming loan limits.
In the case of multi-family properties, the conforming loan limits are generally higher. It stands to reason that such properties will be more expensive due to their size alone. The limit tends to increase based on the number of units in the building. Of course, like with any financing program, a number of factors are taken into account, including the prospective borrower’s LTV, outstanding debt, employment history and credit score.
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