The ceiling on conventional mortgages penalizes home buyers in expensive housing markets, according to Trulia.
The company conducted a city-by-city comparison of the 100 biggest U.S. metropolitan areas to see how many homes in each market sold for more than the amount that Fannie Mae and Freddie Mac will insure. Theoretically, the percentage should have been comparable across markets if loan limits were a true reflection of local differences; in reality, there was great disparity across locations. In San Francisco and San Jose, for example, 61 percent and 43 percent of homes listed on Trulia, respectively, exceeded the area's conventional loan limit, with cities and suburbs near New York, Boston, and Southern California filling in the rest of the top 10. The destinations with the most listings below local limits, meanwhile, were primarily in the South and Rust Belt. Just 2 percent of El Paso, Texas, for instance, topped out the conforming loan limit.
Trulia chief economist Jeb Kolko notes that "despite higher loan limits in high-cost areas, conforming loan limits do not reflect the huge cost differences in housing markets across America." And while buyers who exceed the threshold can still finance a home purchase with a jumbo loan, they face more stringent underwriting -- including a bigger down payment, higher income, and better credit score.