Definition:
The Fannie Mae/Freddie Mac loan limit is the maximum loan amount that Fannie Mae or Freddie Mac will buy from a lender for a single-family home. Loans at or below this limit are called “conforming loans.”
Example:
In 2024, the conforming loan limit for most areas is $766,550. If Jane wants to buy a home and borrow $750,000, her loan qualifies as a conforming loan and can be sold to Fannie Mae or Freddie Mac. But if she needs $800,000, it’s considered a jumbo loan and doesn’t qualify under the standard limit.
Explanation:
Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgages from lenders to keep money flowing in the housing market. However, they only buy loans that meet certain criteria, including staying under the yearly loan limit set by the Federal Housing Finance Agency (FHFA).
This limit varies by location. In high-cost areas like parts of California or New York, the limit may be higher to reflect more expensive housing markets. Loans above the limit are called “jumbo loans” and are considered riskier by lenders, often carrying higher interest rates and stricter qualifications.
The loan limit affects the kind of mortgage buyers can qualify for and what terms lenders can offer. Conforming loans often have better interest rates, lower down payment options, and easier approval processes compared to non-conforming or jumbo loans.
Why is Fannie Mae/Freddie Mac Loan Limit Important in Real Estate Transactions?
This loan limit is important because it impacts affordability and financing options for buyers. Staying within the limit makes it easier to qualify for a loan with better terms. For sellers, knowing whether their home is priced within conforming loan limits can affect how many qualified buyers they attract and how quickly the property sells.