What do loan limits mean?
You’ll hear the term ‘loan limits’ as you talk more and more about financing. There are three types of loan limits: conforming, super-conforming and jumbo. This is important, because the government buys loans in the secondary market, which puts more money back into lenders’ pockets to lend out even more money. The government has limits on the size loans they will buy, so they will only buy conforming and super-conforming loans. The loans that fall outside these categories are jumbo loans.
The conforming loan limit is a permanent limit (subject to change by the government) and the super-conforming limit is temporary, based on median income in a region. Interest rate pricing for the conforming loan limit is generally the lowest of the three.
Jumbo loans are financed through private investors, and not eligible to be purchased in the secondary market. When financing tightens, it’s generally in this category, as there may be fewer investors willing to risk their money to people borrowing money at this level. Pricing for this financing is generally higher than it is with conforming.
Here are the current limits: