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Conforming loan

A Conforming loan is a mortgage backed by Fannie Mae or Freddie Mac which is at or under a dollar limit set by the Office of Federal Housing Enterprise Oversight to ensure that lower-income people have access to such loans. The limit is the maximum amount Fannie or Freddie can back.

Expanded Definition

The conforming limit in 2009 remained at $417,000 for most areas of the country. A higher limit is allowed in some geographic areas with higher housing costs -- up to 150% of the regular limit in some cases in 2009. Alaska, Hawaii, Guam, and the U.S. Virgin Islands are areas where Fannie and Freddie are allowed to back larger mortgages in 2009.

A conforming limit of $417,000 means qualifying borrowers can get a mortgage up to that amount using the preferential terms offered by the government-sponsored entities.

The conforming limit is calculated using a housing price index maintained by the director of the Federal Housing Finance Agency. This index takes into account information compiled by the Federal Housing Finance Board in its Monthly Interest Rate Survey (MIRS).

The board collects monthly data on items including interest rates on fixed- and adjustable-rate mortgages, loan terms offered by various types of lenders (commercial banks, savings associations …), and prices of different types of single-family housing (new, previously occupied …). Limits are also set for multifamily dwellings.

The conforming limit is adjusted each January, although the amount does not always change. A decrease in the housing index in the previous 12 months will mean the limit stays the same.

Information on current limits can be found on the website of Freddie Mac.

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