If you’ve ever been in the market for a new home, you might have heard terms like “conforming limit” or “jumbo loan” thrown around. This might seem like just another regulation or a hoop you have to jump through, but it’s really very simple to understand when broken down.
Simply put, the conforming loan limit is the largest possible mortgage amount that Fannie Mae and Freddie Mac will purchase (currently set at $726,200 for 2023). Anything above the conforming limit is a jumbo loan. Conforming loans also include other criteria, such as credit and income requirements.
What is the Difference Between Fannie Mae and Freddie Mac?
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), or private companies that receive support from the federal government, that provide easy access to funds, or liquidity, to the mortgage industry. Once a mortgage is finalized, the lender sells it to a GSE like Fannie Mae or Freddie Mac, which then frees up their funds so they can originate more mortgages. In mortgage speak, this behind-the-scenes action is known as the secondary market.
That said, to ensure security for all parties involved, the Federal Housing Finance Agency (FHFA) sets a limit for how much any given loan can be for Fannie Mae or Freddie Mac to purchase it. The biggest benefit of taking out a conforming loan is that your interest rate will likely be lower, which means lower monthly payments and less money spent over time.
What do Fannie Mae and Freddie Mac Stand For?
We know what you’re thinking: Where do Fannie and Freddie get those awesome names? Are they named after a brother-sister duo of tycoons that ruled the financial industry in the early 1900s? Unfortunately, the backstory isn’t that elaborate. Fannie Mae’s real name is the Federal National Mortgage Association or FNMA. FN for “Fannie,” and MA for “Mae.” (Say it aloud, you’ll see the connection.) The same goes for Freddie Mac – he’s really the Federal Home Loan Mortgage Corporation or FHLMC (F for “Freddie,” and MC for “Mac”).
If a loan amount exceeds the conforming loan limit, it is considered non-conforming or “jumbo.” Have no fear – if the price of your dream home is higher than the conforming limit, you can still get a mortgage! There are just different guidelines and regulations; for instance, you might have a higher interest rate and down payment requirement.
Conforming or not, a Waterstone Mortgage loan professional can help you choose the loan program that best fits your needs. Contact a local home loan expert in your area today to learn more.