In theory, there is no maximum or minimum mortgage amount. In practice, however, qualification requirements and government regulations dictate how large or how small a home loan can be.
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In the United States, the Federal Housing Finance Agency sets the conforming loan limit for each county. Staying within this limit is one important requirement for being a conforming loan.
Conforming loans are easier for lenders to sell on the secondary mortgage market.
You may have heard of “Fannie Mae” and “Freddie Mac,” officially known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These government-sponsored enterprises take over many of the mortgages lenders create, so that financing is available all around the country.
Government-sponsored enterprises help lenders do business, which is why lenders pay close attention to the government’s standards for mortgages.
Jumbo loansIf a mortgage is nonconforming specifically because it goes above the conforming loan limit (meaning it still conforms to the other standards the government has set), it is called a jumbo loan. A jumbo loan will allow you to get a mortgage for a very expensive home, but to qualify you must have good credit, high income, and a great deal of money saved for both a high down payment and cash reserves for future mortgage payments.
If a home costs $80,000, and someone has $75,000 for a down payment, is it possible to get a mortgage for just $5,000? After all, with the expected monthly payment in the double digits, it should be easy to qualify for.
The problem with a mortgage amount this small is it will most likely meet one of the criteria for high-cost lending. If the total amount of fees charged by the lender are more than 5 percent of the loan amount, that makes it a high-cost mortgage. In our example above, the fees would have to total $250 or less to avoid this.
Loan Amount * 5% = Maximum Amount of Fees Example: $5,000 * 0.05 = $250
The lender would have to choose between staying within this severe fee restriction or dealing with all the strict government regulations on high-cost mortgages. For this reason, many lenders do not offer high-cost mortgages at all.