What are Conforming Loan Limits

Conforming loan limits are maximum loan limits set by Fannie Mae and Freddie Mac for first mortgages. There are two types of conforming loan limits for first mortgages: general conforming loan limits and high-cost area conforming loan limits. High-cost area conforming loan limits are for locations where real estate prices are significantly higher than the average U.S. city or town (e.g. urban areas like New York City, Los Angeles, and Chicago). The 2009 general conforming loan limit is for $417,000. The 2009 high-cost area limit is $625,500.

Jumbo Loans

A jumbo loan, or non-conforming loan, is a mortgage with a loan amount that exceeds these conforming loan limits. A jumbo loan has a higher interest rate than a traditional mortgage, but it offers greater financial flexibility and allows qualified borrowers to purchase a more expensive home.

 Second Mortgage Workaround

To avoid exceeding Fannie Mae’s conforming loan limits, you can break up your loan into two mortgages: a first mortgage and a second mortgage. For example, your first mortgage could be for $417,000, and your second mortgage could be for the remaining $250,000. Be aware, however, that a second mortgage generally has a higher interest rate than the first mortgage.