What Are Conforming Loan Limits?

The Federal Housing Finance Agency sets conforming loan limits. These limit the size of mortgages that can be bought or secured by Fannie Mae and Freddie Mac. For most single family homes in the continental United States, the limit is $417,000 for 2009 and 2010. However, in higher cost areas limits can go as high as $729,750, according to the Wall Street Journal.

Why Do Conforming Loan Limits Matter?

When banks issue a loan that meets the limits, they have a guaranteed buyer of that security in Fannie Mae and Freddie Mac, in case the bank needs to free up cash before the mortgage ends. When loans are larger, banks usually must keep the loan on their books instead of being able to sell it.

Effects of Jumbo Loans

Because lenders are more likely to be stuck with a jumbo loan, they charge a higher interest rate than they would on a conventional loan.

What Is an ARM?

An adjustable rate mortgage, or ARM, has a fixed interest rate for the introductory period and then adjusts as market interest rates change. For example, a 5/1 ARM would have the same fixed rate for the first five years and then would adjust each year after that.

Considerations

In order to be approved for a jumbo ARM loan, you usually need to have a credit score of 720 or higher, a 20 percent down payment, steady income and cash reserves.

Source:

Fannie Mae: About Fannie Mae: Loan Limits

Mortgage Q&A: What is a Jumbo ARM Mortgage?

Wall Street Journal: Return of the Jumbo Mortgage