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May 4 2022

Conforming Loan Limits: What They Are and Why They Matter

The Mortgage Meltdown of 2008 brought a lot of lending reform designed to protect consumers from borrowing beyond their capabilities. Enter the Conforming Loan Limit. Conforming loans limit borrowers from pulling loans that exceed a reasonable income ratio for a particular region. The Federal Housing Finance Agency publishes new conforming limits each year. In order to obtain a government guaranteed loan with Fannie Mae or Freddie Mac, the loan on any house must stay below the Conforming Limit. If a borrower pulls out a loan that exceeds the Conforming Limit, then they are obtaining a Jumbo Loan. Jumbo Loans start where Conforming Loans end. Any loan that does not meet Conforming Loan Limits typically costs a higher interest rate. Essentially this discourages borrowers from accruing more debt, and encourages them to think twice about accruing more debt…because the higher debt will typically cost more money.

Conforming Loans and Construction Loans

Since construction loans are temporary, any owner must qualify for a future regular mortgage in order to avoid defaulting on the construction loan. This means that if the owner pulling out the construction loan wants to move in with a standard conventional mortgage, they must keep the borrowed amount under the current conforming limit. All construction loans that are Conventional, FHA, and USDA one-time-closes means that your construction loan must meet conforming guidelines so that it can automatically convert into a qualified mortgage. Therefore, whether purchasing a prebuilt home or building a new home, it is important to know if a conforming loan is feasible or not. Conforming construction loans either allow for an automatic conversion into a conventional mortgage upon completion of the work, or a conventional refinance of the home must pay off the construction debt after the completion of the work.

What Does This Mean?

Whether buying a home or building a home, you must make a decision on how much interest you are willing to pay. The baseline conforming limit for 2022 in Colorado is $647,200. If you plan to purchase or buy in a rising equity market such as Colorado Springs, you may not be able to get that conventional 5% down loan, because a 95% LTV loan of $647,200 only allows for a maximum purchase price of $681,263. Furthermore, if you plan to finance an $800,000 piece of land, you still need room in your loan to build the house.

Juicy Conforming Loan Solutions

Fortunately we have some juicy solutions: Jumbo loans, investment loans, Non-QM loans, etc. If you’re hoping to buy or build a home, please give me a call. I’d love to work with you and set you up to achieve your home purchasing goals. Take a look at the resources page on my website to download helpful mortgage information. I have a 2022 Conforming Loan Limits brochure for all Colorado counties so you can better understand your borrowing options.


Funding Juicy Solutions LLC

T: 619-402-9221

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