Toward the tail end of 2017, Fannie Mae and Freddie Mac announced the new conventional conforming loan limits for 2018 at $453,100 (up from $424,100 in 2017.)
Nobody likes to “be limited.” But the practical reality is that those loans not backed up by the federal government (“conventional loans”) and that will be re-sold by your lender to investors on the general mortgage market (“conforming loans”) must meet a number of very specific standards.
Among these standards is the limit on the total loan amount. But that limit can vary greatly based on a number of factors.
How Are Conventional Loan Limits Determined?
The rules for conventional loan limits can be quite complex. But there is a national baseline limit for single unit homes, from which various adjustments can be made. This is all in accord with the Housing & Economic Recovery Act of 2008.
Each year, Fannie Mae/Freddie Mac must readjust the baseline limit to reflect actual average values of US homes sold in the previous year. That’s where the limit of $453,100 came from. But if it’s a multi-unit home, the limit will rise to reflect that. And if you live in a high-priced area, there are further adjustments to be made.
Anywhere where 115% of the median home value is more than the baseline, the limit for that area will correspondingly rise. But there is also a limit to how far the limit can be raised – 150% for the highest home value local areas, which comes out to (for 2018) $679,650.
For Alaska, Hawaii, and certain US dependencies, everything is set at the 150% limit, in the two non-contiguous states, there are even special localities that can exceed the $679,650 ceiling. But otherwise, it’s a strict limit for single-units.
What About Limits For Multi-Units?
By now, you may be asking, “What if I’m interested in a loan to buy a multi-unit home? What are the limits for that?”
We’re glad you asked! For double-units, the 2018 limit is $580,150 but $870,225 in the highest cost ares (that is, at the 150% ceiling.)
For triple-units, the limit is $701,250 but $1,051,875 in high-cost areas. For quadruple-units, the limit’s set at $871,450 and the 150% limit is $1,307,175.
In the highest-cost areas of Alaska, Hawaii, Guam, and the US Virgin Islands, the high-cost limits for special regions is over $1 million and sometimes nearly $2 million.
What If I Need an Over-the-limit Loan?
Conventional loans are generally approved for higher amounts than FHA or VA loans (though not always.) Your best way to get a bigger loan than the conforming conventional limits will allow is to opt for a nonconforming conventional loan.
Non-conforming loans do not have to meet the standards or abide within the amount-limits set up by Fannie Mae and Freddie Mac. Why? Because they are generally issued by private lenders who do not intend to re-sell your mortgage to investors but simply keep it in their own portfolio.
Nonconforming loans are much more flexible in terms and amounts. Those over the usual limits we’ve discussed in this article are called “jumbo loans.” Those that are lent to those with credit scores or debt to income ratios that would normally prevent approval are called “subprime loans.”
But while nonconforming conventional loans are harder to get approved sometimes and are harder for your lender to re-sell if he ever decides to, they are not at all uncommon. There are many situations where such “nonconformist” loans are quite appropriate, and they certainly offer more flexibility to the borrower.
Life and loans both present limits to us. Often, there are ways around these limits, exceptions and ways to adjust them, and the like. Don’t consider a loan limit an absolute roadblock if you encounter one – but to be a well informed borrower, you have to at least be aware of them.
