New York Conventional, Conforming, Jumbo and Construction Loans

For the New York salesperson exam, classify the loan in layers. Ask who backs it, whether it meets the applicable conforming limit, what the money finances and how funds are disbursed. That approach is more reliable than treating the four terms as competing answers.

What is the fastest way to distinguish these loan terms?

The memory rule is:

Conventional asks about backing. Conforming asks about eligibility and limits. Jumbo asks about size. Construction asks how a project is funded.

Official source map

The New York State Department of State Real Estate Salesperson 77-Hour Curriculum places conventional and governmental mortgages under general mortgage types. It separately lists construction loans under specific loan forms in Subject 5, Real Estate Finance. The curriculum does not state how many scored exam questions will address either concept.

The Consumer Financial Protection Bureau defines a conventional loan as a mortgage outside the federal insurance and loan-backing programs used for FHA, VA and USDA financing. It also states that conventional loans can be conforming or nonconforming. This is the cleanest first distinction.

The Federal Housing Finance Agency, or FHFA, sets annual conforming loan limits for mortgages Fannie Mae and Freddie Mac may acquire. Its 2026 announcement sets the one-unit national baseline at $832,750 and the nationwide high-cost ceiling at $1,249,125. The applicable local limit depends on county and number of units, so the ceiling is not automatically the limit in a New York high-cost county.

FHFA's 2026 county-level table shows that ten New York counties use a one-unit high-cost limit of $1,209,750. The remaining New York counties use the $832,750 one-unit baseline. Limits are higher for qualifying two-, three- and four-unit properties.

For construction financing, the Consumer Financial Protection Bureau construction-loan explanation describes short-term financing, staged advances and possible conversion or refinancing. Its TRID construction-loan FAQ distinguishes construction-only from construction-permanent loans and explains separate or combined disclosures.

The Fannie Mae Selling Guide published August 5, 2026 supplies current, program-specific rules for one-close and two-close construction-to-permanent financing. Those rules govern Fannie Mae eligibility. They are not universal terms for every private construction lender.

New York adds a lien-law layer. Lien Law section 22 requires a qualifying building loan contract and modifications to be written, acknowledged, verified and filed as prescribed. Lien Law section 13 addresses priority and the required trust-fund covenant in a building loan mortgage or contract.

What should a student be able to do after this lesson?

You should be able to:

• distinguish a conventional loan from a government-backed loan;
• explain why a conventional loan can be conforming or nonconforming;
• use the correct 2026 county and unit limit before calling a loan jumbo;
• distinguish the national baseline, local high-cost limit and national ceiling;
• identify New York's ten high-cost counties in the 2026 FHFA table;
• explain why a loan above the baseline can still be conforming in a high-cost county;
• distinguish a jumbo loan from every other type of nonconforming loan;
• compare construction-only, one-close construction-to-permanent and two-close financing;
• explain draws, inspections, interest on advances, contingencies and completion;
• calculate basic loan-to-value, loan-to-cost and draw-interest examples;
• recognize New York building-loan filing and mechanic's-lien concerns; and
• identify when a salesperson should refer a financing or construction issue to the lender, attorney, engineer or tax professional.

Why can one loan have several classifications?

Mortgage labels describe different dimensions. A loan can have one answer on each line:

Example: a one-close loan that funds construction and later converts to a 30-year fixed-rate mortgage might be:

• conventional because it is outside federal insurance and loan-backing programs;
• conforming because the final loan satisfies enterprise rules and the local limit;
• construction-to-permanent because it funds the build and converts; and
• fixed-rate and amortizing during its permanent phase.

None of those labels cancels another. They answer separate questions.

What is a conventional mortgage loan?

A conventional mortgage is a mortgage outside federal programs such as Federal Housing Administration insurance and Department of Veterans Affairs or United States Department of Agriculture loan backing.

The lender still holds collateral and evaluates repayment risk. A private mortgage insurer may protect the lender on some high loan-to-value conventional loans. Private mortgage insurance does not transform the loan into a government loan.

Conventional does not mean:

• conforming in every case;
• low risk;
• a 20 percent down payment is required for every borrower;
• no mortgage insurance can apply;
• fixed rate; or
• available from only one kind of lender.

Program, borrower, property, occupancy and underwriting terms determine eligibility. The later underwriting and mortgage-insurance lesson will cover those standards without turning one program's rule into a universal minimum.

Is Fannie Mae or Freddie Mac insurance a conventional loan receives?

No. Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase eligible mortgages and support the secondary market. They do not provide FHA-style mortgage insurance to the borrower.

A lender can originate a conventional loan and later sell it to an enterprise when it meets the applicable requirements. That secondary-market relationship does not make the mortgage an FHA, VA or USDA loan.

The dedicated primary and secondary mortgage market lesson will explain loan sale, servicing and securitization. For this article, remember that enterprise eligibility is the basis of the conforming classification.

What is a conforming mortgage loan?

A conforming mortgage is a conventional loan that meets the applicable requirements for acquisition by Fannie Mae or Freddie Mac. The loan amount must stay within the current limit for the property's county and number of units, but size is only one part of the test.

Other eligibility rules can address:

• borrower credit and capacity;
• loan-to-value ratio;
• occupancy and property type;
• documentation;
• appraisal and collateral;
• mortgage insurance when required;
• loan features; and
• representations made by the lender.

A $500,000 conventional loan is below every 2026 New York one-unit conforming limit, but that fact alone does not prove that the loan conforms. It might fail another enterprise requirement.

What are the 2026 conforming loan limits?

For the contiguous United States, District of Columbia and Puerto Rico, FHFA established these 2026 baseline limits:

The 2026 nationwide high-cost ceilings in those areas are:

The second table gives the maximum ceiling permitted under the federal formula. It is not a substitute for the county lookup. New York's listed high-cost counties are below that ceiling in 2026.

These limits apply to one- through four-unit single-family mortgages for enterprise acquisition. A five-unit property is not treated as a five-unit single-family conforming loan.

Which New York counties have higher 2026 limits?

FHFA's 2026 county table assigns the same high-cost limits to these ten New York counties:

• Bronx County;
• Kings County, which is Brooklyn;
• Nassau County;
• New York County, which is Manhattan;
• Putnam County;
• Queens County;
• Richmond County, which is Staten Island;
• Rockland County;
• Suffolk County; and
• Westchester County.

Their 2026 limits are:

All other New York counties use the 2026 baseline table. The property's county controls, not the borrower's residence, employer or chosen lender.

The limits change by calendar year. A student should understand the classification and use the figures supplied in an exam question. A buyer or licensee working on a live loan should use FHFA's current county lookup and confirm the lender's applicable delivery rules.

What is a high-balance conforming loan?

A high-balance conforming loan is above the national baseline but at or below the applicable high-cost county limit, while satisfying the other enterprise requirements.

Example for a one-unit Westchester County property in 2026:

• national baseline: $832,750;
• Westchester one-unit limit: $1,209,750; and
• proposed loan: $1,000,000.

The loan exceeds the baseline by $167,250, but it is $209,750 below the Westchester limit. Its size can fit the high-balance conforming range. The loan still has to meet all other eligibility requirements.

Move the same $1,000,000 one-unit loan to Albany County. Albany uses the $832,750 baseline in 2026. The amount exceeds the applicable local limit by $167,250, so it is jumbo by size.

What is a jumbo mortgage loan?

A jumbo loan exceeds the conforming loan limit for the property's county and unit count. FHFA uses this size relationship when explaining loans above the enterprise acquisition limit.

Jumbo is a type of nonconforming loan, but the two terms are not identical:

• Jumbo means the amount is above the applicable limit.
• Nonconforming means the loan does not meet one or more enterprise purchase requirements.

A loan can be nonconforming even when its amount is below the limit. Examples can involve an ineligible feature, property, documentation method or risk profile. A jumbo loan is nonconforming because of size, even if a private lender uses strong underwriting standards.

Does jumbo mean the loan is unlawful or poorly underwritten?

No. Jumbo describes the relationship between loan amount and the conforming limit. Banks, credit unions and other lenders can hold or privately sell jumbo loans under their own programs and applicable law.

Because the lender cannot rely on ordinary conforming acquisition for that loan, a jumbo program may use different requirements for:

• reserves;
• income and asset documentation;
• credit profile;
• down payment and loan-to-value;
• appraisal review;
• interest rate and pricing; and
• property type.

Those are possible program differences, not a single statewide jumbo rule. Compare actual Loan Estimates and lender guidelines rather than assuming every jumbo loan has the same rate or cash requirement.

How do you classify a loan at the exact limit?

A loan amount at the applicable conforming limit is not jumbo merely because it equals the limit. It can satisfy the size test. Amounts above the applicable limit are jumbo by size.

Example in Queens County for a one-unit property in 2026:

• $1,209,750 is at the local limit and can satisfy the size test;
• $1,209,751 is one dollar above the local limit and is jumbo by size.

The first loan still must meet the other conforming requirements. The second does not become conforming because the difference is small.

Does the purchase price determine whether a loan is jumbo?

No. The loan amount is compared with the applicable conforming loan limit. Purchase price and appraised value influence down payment and loan-to-value, but a high-priced property can have a conforming loan if the borrower provides enough equity.

Assume a $1,500,000 one-unit home in Nassau County and a $1,100,000 first mortgage in 2026. The mortgage is below Nassau's $1,209,750 one-unit limit, so its size can fit the high-balance conforming category. The $1,500,000 price does not make the loan jumbo.

The simple price-gap equity before closing adjustments is:

$1,500,000 minus $1,100,000 = $400,000

The purchase loan-to-value ratio is:

$1,100,000 divided by $1,500,000 = 73.33 percent

If the appraisal were lower than the price, the lender's applicable value basis could change the underwriting calculation.

Does the number of dwelling units matter?

Yes. FHFA publishes separate limits for one-, two-, three- and four-unit properties. A student should not apply the one-unit number to a legal two-family home.

Example: a $1,000,000 conventional loan on a two-unit property in Albany County is below the 2026 two-unit baseline of $1,066,250. Its size can fit the conforming limit even though the same $1,000,000 loan on a one-unit Albany property exceeds the $832,750 one-unit limit.

Unit count means lawful dwelling units, not bedrooms. Zoning, certificate-of-occupancy and appraisal facts can matter in a live transaction.

What is a construction loan?

A construction loan finances the initial construction or, depending on the product, substantial rehabilitation of a home. Unlike a standard purchase mortgage that funds a completed acquisition at closing, construction money is commonly advanced in stages as work progresses.

The Consumer Financial Protection Bureau describes construction loans as usually short term, with funds provided in a series of advances. The borrower can pay the balance at the end, obtain replacement permanent financing or use a product that converts to a long-term mortgage.

Construction financing must coordinate:

• land ownership or purchase;
• plans and specifications;
• construction contract and budget;
• permits and approvals;
• builder or contractor review;
• appraisal based on proposed completion;
• borrower contribution;
• draw schedule and inspections;
• interest and carrying costs;
• insurance;
• mechanic's-lien controls;
• change orders and overruns; and
• completion and permanent financing.

The loan funds a process, not merely a finished building.

What is a construction draw?

A draw is an advance of part of the committed construction-loan amount. The lender does not ordinarily release the entire commitment to the borrower on the first day. It releases approved amounts as specified stages or costs are completed and documented.

A simplified draw schedule might include:

The actual lender schedule, contract and local project control the categories. A percentage in this sample is not a required New York draw percentage.

Why does the lender inspect before a draw?

The lender wants evidence that completed work supports the requested disbursement and that remaining funds appear sufficient to finish the project. An inspector can report construction progress, but that limited draw inspection is not necessarily a full code, engineering or buyer-quality inspection.

Before releasing a draw, the lender may review:

• request and supporting invoices;
• percentage of work completed;
• site inspection report;
• title update and new lien filings;
• contractor or subcontractor affidavits;
• lien waivers where appropriate;
• budget balance;
• change orders; and
• required permits or completion evidence.

Students should not confuse a lender draw inspection with a municipal code inspection or the buyer's independent inspection.

How is interest commonly calculated during construction?

Many construction loans require interest on the amount advanced and outstanding, rather than on the full undisbursed commitment. The note controls the interest method, payment timing and day-count convention.

Assume:

• outstanding draws: $300,000;
• annual interest rate: 7.2 percent;
• interest period: 30 days; and
• stated 360-day convention.

The simplified interest is:

$300,000 times 0.072 times 30 divided by 360 = $1,800

If another $100,000 draw is made, future interest can be based on a $400,000 outstanding balance from the applicable funding date. Do not charge interest on the extra amount for days before it was advanced unless the loan documents state another method.

An exam question may use annual interest divided by 12 instead. Follow the method and facts supplied.

What is a construction-only loan?

A construction-only loan is short-term financing for the build phase. It generally uses multiple advances and may require interest-only payments on the accrued balance. At maturity, the borrower must pay the remaining balance, commonly with a permanent mortgage or other funds.

The major risk is take-out financing. If the construction loan does not automatically convert, the borrower may need a new application, appraisal, underwriting decision, rate and closing. Changes in income, credit, rates, value, completion status or lending standards can affect that second loan.

Construction-only does not mean the debt disappears when the building is finished. Completion can trigger the payoff or maturity requirement.

What is construction-to-permanent financing?

Construction-to-permanent financing connects the temporary build phase to a long-term amortizing mortgage. The construction phase uses advances. After required completion and conversion, regular permanent-loan principal and interest payments begin under the loan terms.

Two common structures are:

1. Single-close: construction and permanent financing close together at the beginning.
2. Two-close: interim construction financing closes first, and permanent financing closes after completion.

The Consumer Financial Protection Bureau permits a covered creditor to disclose a construction-permanent loan as one combined transaction or as separate construction and permanent phases under the applicable Regulation Z provisions. Disclosure treatment and the number of legal closings are related but should not be assumed identical without reading the documents.

How does a one-close construction-to-permanent loan work?

In a one-close structure, the borrower signs the construction and permanent financing documents at the initial closing. The lender manages advances during construction. When required completion conditions are met, the loan converts to the long-term mortgage under its documents.

Potential advantages include:

• one initial closing package;
• permanent financing arranged earlier;
• fewer duplicate closing steps; and
• a defined conversion path.

Potential issues include:

• construction delays;
• changes in rate, term, amount or design;
• requalification or updated documentation under program rules;
• cost overruns;
• appraisal changes; and
• failure to satisfy completion conditions.

Fannie Mae's current Selling Guide states that its single-close construction-to-permanent loans automatically convert when construction is completed under the documents. It also contains program-specific time, modification, underwriting and completion rules. Do not apply Fannie Mae's exact limits to a portfolio lender that uses a different product.

How does a two-close construction-to-permanent structure work?

A two-close structure uses separate legal closings and separate notes:

1. The first loan funds the land and construction as permitted.
2. After completion, the second permanent mortgage pays or replaces the interim construction debt.

The permanent lender can be different from the construction lender. Fannie Mae's current guide states that it does not purchase the initial construction loan in this structure, but it can purchase an eligible permanent mortgage used after completion.

Compared with a one-close structure, two-close financing may offer flexibility to select a later permanent loan. It can also involve a new application, updated appraisal, underwriting, interest rate, title work, recording and closing costs. A preapproval for the second loan is not a final commitment to fund after construction.

What is a take-out loan?

A take-out loan is the permanent financing used to repay the temporary construction loan. The term describes the permanent loan's function: it takes out the interim debt after the building is completed and required conditions are satisfied.

The parties should determine:

• whether the take-out lender issued a binding commitment;
• the commitment expiration date;
• rate-lock terms;
• completion and occupancy conditions;
• appraisal requirements;
• borrower requalification;
• title and lien conditions; and
• what happens after delay or cost overrun.

A construction lender may require a take-out commitment before funding. The exact requirement belongs to the lender's program and documents.

What is an as-completed appraisal?

An as-completed appraisal estimates the property's market value based on the plans and specifications as if the proposed construction were complete. It helps the lender compare the completed collateral with the loan amount.

The appraiser typically considers:

• site and proposed improvements;
• plans, specifications and quality;
• legal use and unit count;
• comparable completed properties;
• market conditions; and
• assumptions or conditions stated in the report.

Before permanent conversion or final funding, the lender can require evidence that the work was completed as described. A completion report does not erase material deviations, unresolved permits or value changes.

How is construction-to-permanent LTV calculated?

The formula depends on the lender and transaction. Under Fannie Mae's August 5, 2026 Selling Guide, a single-close purchase construction-to-permanent LTV uses:

Loan amount divided by the lesser of total purchase price or as-completed appraised value

For that rule, total purchase price is the construction cost plus the lot's sales price.

Assume:

• lot sales price: $180,000;
• construction cost: $620,000;
• total purchase price: $800,000;
• as-completed appraised value: $850,000; and
• loan amount: $640,000.

Use the lower value, $800,000:

$640,000 divided by $800,000 = 80 percent LTV

If the as-completed appraisal were $760,000, use $760,000:

$640,000 divided by $760,000 = 84.21 percent LTV

Do not divide by the higher figure merely because it produces a lower ratio.

For a Fannie Mae single-close limited cash-out transaction in which the borrower owns the lot before the first advance, the current guide uses the as-completed appraised value as the denominator. Other lenders and programs can use different definitions.

What is loan-to-cost in a construction loan?

Loan-to-cost, or LTC, compares the loan with the eligible project cost:

LTC = loan amount divided by eligible total project cost

Using a $640,000 loan and $800,000 eligible project cost:

$640,000 divided by $800,000 = 80 percent LTC

LTC and LTV can differ because cost and value are different. A project costing $800,000 might appraise at $850,000. A lender may cap both ratios and use the more restrictive result.

The Department of State curriculum emphasizes mortgage concepts rather than publishing a required LTC formula. If an exam question asks for a ratio, use its stated numerator, denominator and facts.

What happens when construction costs increase?

A cost overrun occurs when actual or projected cost exceeds the approved budget. It can result from price changes, site conditions, design revisions, delays, permit requirements or underestimated work.

Assume:

• approved construction budget: $620,000;
• approved contingency: $31,000;
• documented revised cost: $675,000.

The amount above the original budget is:

$675,000 minus $620,000 = $55,000

After applying the $31,000 contingency, the uncovered overrun is:

$55,000 minus $31,000 = $24,000

The loan agreement determines whether the borrower must deposit that amount, the lender may approve an increase, scope must change or another remedy applies. A salesperson should not promise that future draws will cover an unapproved change order.

What is a construction contingency?

A contingency is budgeted money reserved for unforeseen eligible costs. It is not free cash available for upgrades. The lender can control when and how it is released.

A contingency can help absorb limited changes, but it does not eliminate:

• change-order approval;
• revised plans or permits;
• appraisal impact;
• borrower contribution requirements;
• loan-limit constraints; or
• completion deadlines.

The borrower should understand who authorizes use, whether unused funds reduce the final loan and what happens when overruns exceed the reserve.

Why do mechanic's liens matter to construction financing?

New York Lien Law section 3 permits qualifying contractors, subcontractors, laborers and material suppliers to claim a mechanic's lien for labor or materials used to improve real property. A lien claim can affect title, priority, later draws and permanent conversion.

Construction lenders therefore use controls such as:

• title continuations or updates;
• sworn statements and invoices;
• lien waivers or releases;
• direct payments to approved parties;
• retainage;
• inspection and completion evidence; and
• requirements to resolve filed liens.

A lien waiver should be reviewed for its actual scope and payment status. The salesperson should not draft a waiver or decide whether a disputed lien is valid.

What is a New York building loan contract?

New York Lien Law section 2 defines a building loan contract as an agreement in which a lender promises advances to or for an owner who promises to improve real property, with the advances secured by a mortgage.

For a qualifying building loan, section 22 requires the contract to be written and acknowledged. It must contain a verified statement showing specified consideration, expenses and the net sum available to the borrower for the improvement. It must be filed in the county clerk's office on or before the building loan mortgage is recorded. A qualifying modification has its own filing deadline.

Failure to comply can affect lien priority. This is an attorney and title-company issue in a live closing, but it gives New York students a concrete reason why construction financing has more documents than an ordinary purchase mortgage.

What does the New York trust-fund covenant do?

Lien Law section 13 requires a qualifying building loan mortgage or contract to contain a covenant that advances will be held as trust funds and applied first to the cost of improvement before other use. The statute also addresses priority between building-loan advances and mechanic's liens.

For exam understanding:

• construction advances are tied to the improvement;
• lien priority can depend on recording, filing, timing and statutory language; and
• lenders closely control draws because unpaid project participants can claim interests against the property.

Avoid inferring final priority from one date in a short scenario unless the question supplies the facts needed under the statute.

Do construction loans receive Loan Estimates and Closing Disclosures?

Most closed-end consumer construction loans secured by real property are covered by the TILA-RESPA Integrated Disclosure rule when its coverage requirements are met. The Consumer Financial Protection Bureau states that both construction-only and construction-permanent loans can be covered.

For a covered construction-permanent transaction, Regulation Z permits the creditor to use:

• one combined Loan Estimate and Closing Disclosure; or
• separate disclosures for the construction and permanent phases.

The disclosures can use special estimating methods because the timing and amount of future advances may be unknown at closing. The later TRID article will explain application timing, revised estimates and Closing Disclosure rules.

The exam-safe point is not that every construction loan gets identical pages. It is that construction financing can have covered consumer disclosures, and the creditor may treat the phases separately or together when the regulation permits.

Is a construction loan the same as a renovation loan?

Not necessarily. Regulation Z's Loan Estimate purpose rule treats financing for initial construction as construction, while a loan for improvements to an existing dwelling can be categorized differently for disclosure purposes.

Market usage can be broader, and lenders offer renovation products that combine acquisition or refinance with improvements. Read the stated purpose:

• building a new dwelling on a lot;
• completing a home already under construction;
• substantially rehabilitating an existing structure; or
• making ordinary repairs or improvements.

The product name alone may not resolve its legal classification.

Is a construction loan automatically conventional?

No. Construction describes the purpose and disbursement structure. Government-backed programs can also support eligible construction or rehabilitation financing. Those programs have their own property, borrower, lender and completion rules.

The next article compares FHA, VA and Rural Housing Service loans. This lesson uses conventional construction-to-permanent financing to teach the classification, not to imply that construction is a conventional-only category.

Can a construction-to-permanent loan be conforming?

Yes, after construction and conversion, a permanent mortgage can be eligible for enterprise purchase when it meets the applicable loan limit and all other requirements. Fannie Mae states that it purchases an eligible single-close construction-to-permanent loan only after construction is completed and the loan has converted.

In a two-close structure, Fannie Mae does not purchase the initial construction loan but can purchase the eligible permanent loan. That difference shows why a product can be nonstandard during construction yet become a conforming permanent mortgage after completion.

Can a construction loan be jumbo?

Yes. If the permanent loan amount exceeds the applicable county and unit conforming limit, it is jumbo by size. A private lender can offer a jumbo construction-to-permanent product under its own criteria.

Example: a one-unit construction-to-permanent loan of $1,300,000 in Westchester County exceeds the 2026 local limit of $1,209,750 by $90,250. It is jumbo by size. Calling Westchester a high-cost county does not make every amount conforming.

What documents should be reviewed in a construction transaction?

A useful document map is:

Each professional reads these documents for a different purpose. A lender inspection does not replace an architect, engineer, municipal inspector, buyer inspector or attorney.

What questions should a buyer ask before choosing construction financing?

The buyer should ask the lender and attorney:

1. Is this construction-only, single-close or two-close financing?
2. Is the permanent rate locked, floating or set later?
3. What event starts interest and on what balance?
4. What is the draw schedule?
5. Who inspects, and what does the inspection cover?
6. Who approves change orders?
7. Who pays overruns and interest reserves?
8. Is there a contingency, and who controls it?
9. What completion deadline applies?
10. Can the construction period be extended, and at what cost?
11. Must the borrower requalify before conversion?
12. What happens if value declines?
13. What title updates and lien waivers are required?
14. Is builder's risk or other construction insurance required?
15. What documents trigger final conversion?
16. Is a second closing required?
17. Which closing, recording and mortgage-tax costs can occur?
18. Does the loan amount fit the applicable 2026 county and unit limit?

The answers belong in written lender and legal documents, not only in a sales conversation.

How can a salesperson explain these products without giving lending advice?

A New York salesperson can identify the vocabulary, collect documents and coordinate with licensed lending and legal professionals. The salesperson should not approve credit, quote binding loan terms without authority, interpret a lender commitment or promise that a construction draw will fund.

A careful explanation is:

"Conventional tells us the loan is outside federal insurance and loan-backing programs. Conforming depends on the property's county, unit count, current limit and program standards. Construction tells us the funds are released for the project in stages. Please have the lender confirm the classification, draw process and permanent-financing conditions in writing."

Refer the client when the issue involves:

• credit eligibility or rate qualification;
• binding commitment terms;
• legal effect of a building loan agreement;
• mechanic's-lien validity or priority;
• building-code or engineering compliance;
• tax treatment; or
• contract drafting.

What misconceptions should students reject?

Misconception 1: Conventional and conforming mean the same thing

They do not. Conventional means the mortgage is outside government insurance and loan-backing programs. Conforming means the loan meets enterprise acquisition standards.

Misconception 2: Every conventional loan is conforming

A conventional loan can be conforming, jumbo or otherwise nonconforming.

Misconception 3: Every nonconforming loan is jumbo

Jumbo is nonconforming because of size. A smaller loan can be nonconforming for another eligibility reason.

Misconception 4: The 2026 nationwide ceiling is the New York City limit

The national one-unit ceiling is $1,249,125, but the 2026 one-unit limit in New York City's counties is $1,209,750.

Misconception 5: A loan above $832,750 is jumbo everywhere in New York

The ten listed high-cost counties have higher 2026 limits. A loan above baseline can remain within their high-balance conforming range.

Misconception 6: Purchase price determines jumbo status

Loan amount is compared with the applicable loan limit. Price affects equity and LTV, not the size classification by itself.

Misconception 7: A two-family property uses the one-unit limit

FHFA publishes separate two-unit limits. Bedrooms do not determine legal unit count.

Misconception 8: A construction lender gives the borrower all funds at closing

Construction funds are commonly advanced through draws as work progresses.

Misconception 9: A draw inspection certifies full construction quality

It supports the lender's funding decision. Its scope can be narrower than code, engineering or buyer inspections.

Misconception 10: Completion cancels a construction-only balance

The balance must be paid, refinanced or converted according to the documents.

Misconception 11: One-close means no later conditions apply

Conversion still depends on completion and the loan's program requirements. Updated documents, value or qualification can matter.

Misconception 12: Construction loans cannot be conforming or jumbo

Construction describes purpose and draws. The permanent financing can be conforming or jumbo based on amount and eligibility.

What decision tree works on exam questions?

Use this order:

1. Identify backing. Is a government program providing insurance or other loan backing?
2. Identify location and units. Which county and how many lawful units?
3. Find the correct limit. Baseline or local high-cost amount for the stated year?
4. Compare loan amount. At or below the limit, or above it?
5. Check other eligibility. Does the question state that enterprise standards are met?
6. Identify purpose. Completed-home purchase, refinance or construction?
7. Identify structure. Construction-only, one-close or two-close?
8. Follow the money. Full funding or staged draws?
9. Use the right denominator. Cost, price, lower of price or appraisal, or as-completed value?
10. Choose the statement that answers the question asked. Avoid using a true construction fact to answer a government-backing question.

Can you apply the rules to five New York scenarios?

Scenario 1: High-balance conforming in Queens

A borrower seeks a $1,100,000 conventional loan on a one-unit Queens property in 2026. The question states that all other enterprise requirements are met.

Analysis: Queens has a $1,209,750 one-unit limit. The loan is above the $832,750 baseline but below the local limit, so it can be high-balance conforming.

Scenario 2: Jumbo in Monroe County

A borrower seeks a $900,000 conventional loan on a one-unit Monroe County property in 2026.

Analysis: Monroe County uses the $832,750 one-unit baseline. The loan exceeds the applicable limit by $67,250 and is jumbo by size.

Scenario 3: Two-unit limit changes the answer

A borrower seeks a $1,000,000 conventional loan in Erie County. The property is a lawful two-unit home.

Analysis: The 2026 two-unit baseline is $1,066,250. The amount is within the two-unit size limit. Using the one-unit limit would produce the wrong classification.

Scenario 4: Construction draw interest

A construction loan has $250,000 outstanding at 8 percent annual interest for 45 days using a 360-day convention.

Analysis: $250,000 times 0.08 times 45 divided by 360 equals $2,500. An undrawn amount is not included in this simplified calculation.

Scenario 5: Lower construction value controls

A Fannie Mae single-close purchase has $700,000 total lot and construction price, a $680,000 as-completed appraisal and a $544,000 loan.

Analysis: Use the lower $680,000 appraisal. The LTV is $544,000 divided by $680,000, or 80 percent.

How can a student practice this topic?

Question 1

Which description best defines a conventional mortgage?

A. A loan purchased by the state government
B. A loan outside government insurance and loan-backing programs
C. A loan below every county limit
D. A loan with a 20 percent down payment

Answer: B. Conventional classifies the absence of government-program insurance or other federal loan backing.

Question 2

A $1,000,000 one-unit conventional loan is proposed in Westchester County in 2026, and all other enterprise requirements are met. How is it classified by size?

A. Baseline conforming
B. High-balance conforming
C. Jumbo
D. Government-insured

Answer: B. It exceeds the $832,750 baseline but stays below Westchester's $1,209,750 local limit.

Question 3

Which statement about a jumbo loan is most accurate?

A. It exceeds the applicable county and unit conforming limit
B. It is insured by the Federal Housing Administration
C. Its purchase price exceeds the baseline limit
D. It lacks a mortgage lien

Answer: A. Jumbo is determined by comparing the loan amount with the applicable limit.

Question 4

Which statement distinguishes construction-only from one-close construction-to-permanent financing?

A. Construction-only has no repayment obligation
B. One-close arranges construction and permanent financing in the initial transaction
C. Construction-only must be a government loan
D. One-close disburses every dollar before work begins

Answer: B. A one-close structure connects both phases in the initial closing and converts under its documents.

Question 5

A project has $400,000 in outstanding construction draws at 6 percent annual interest for 30 days on a 360-day basis. What is the simplified interest?

A. $1,000
B. $2,000
C. $6,000
D. $24,000

Answer: B. $400,000 times 0.06 times 30 divided by 360 equals $2,000.

Question 6

For a Fannie Mae single-close construction purchase, the total price is $900,000, the as-completed appraisal is $860,000 and the loan is $688,000. What is the LTV under the stated rule?

A. 76.44 percent
B. 80 percent
C. 95.35 percent
D. 104.65 percent

Answer: B. Use the lower $860,000 value. $688,000 divided by $860,000 equals 80 percent.

Question 7

Why can a mechanic's lien affect a construction loan draw?

A. It can create a title and priority issue involving unpaid project work
B. It changes a conventional loan into a VA loan
C. It sets the federal conforming limit
D. It proves the building passed every code inspection

Answer: A. Lien claims can affect collateral, priority and the lender's willingness to release more funds.

What is the one-minute review?

• Conventional means no federal loan-program insurance or other federal backing.
• Conventional loans can be conforming or nonconforming.
• Conforming requires the correct county and unit limit plus other enterprise standards.
• The 2026 one-unit baseline is $832,750.
• Ten New York counties use a $1,209,750 one-unit high-cost limit in 2026.
• The $1,249,125 national high-cost ceiling is not the local New York City limit.
• High-balance conforming is above baseline but within the applicable local limit.
• Jumbo means above the applicable county and unit limit.
• Construction loans commonly use staged advances called draws.
• Construction-only financing needs payoff or replacement at maturity.
• One-close financing arranges construction and permanent phases at the first closing.
• Two-close financing uses a later permanent-loan closing.
• LTV, LTC and draw-interest calculations use different inputs.
• New York building loan contracts can trigger special filing, trust-fund and lien-priority rules.

Frequently asked questions

What is the 2026 conforming loan limit in New York?

For a one-unit property, it is $832,750 in most New York counties. Bronx, Kings, Nassau, New York, Putnam, Queens, Richmond, Rockland, Suffolk and Westchester Counties use $1,209,750. Two- through four-unit limits are higher.

Is a $900,000 mortgage jumbo in New York?

It depends on county and unit count. It is above the one-unit baseline in most counties but below the one-unit 2026 high-cost limit in the ten listed downstate counties.

Can a conventional loan have private mortgage insurance?

Yes. Private mortgage insurance can protect a conventional lender when required by the program. It does not make the mortgage government-insured.

Is a conforming loan necessarily cheaper than a jumbo loan?

No universal price rule decides a live quote. Rates and fees depend on market conditions, lender pricing, borrower facts, property, term and loan structure. Compare written Loan Estimates.

Does a construction loan include the land?

It can. Some products finance purchase of the lot and construction together, while others finance construction on land the borrower already owns. The documents determine eligible costs and lien structure.

Does a one-close loan lock the permanent interest rate at the beginning?

Not in every product. The rate may be locked, float or change under stated terms. Read the commitment and loan documents rather than inferring rate treatment from the number of closings.

Who pays a construction cost overrun?

The loan agreement, approved budget and change-order process control. The borrower may have to contribute funds when the lender does not approve a higher loan or the contingency is insufficient.

Is the undrawn construction commitment part of the current principal balance?

Not ordinarily. The committed maximum and amount actually advanced are different figures. Interest and repayment depend on the note, draw history and stated calculation method.

What should you study next?

Continue with the Real Estate Finance subject guide. Review fixed, adjustable, balloon, graduated and straight mortgages to separate loan classification from rate and payment structure.

Use the loan-to-value glossary page and calculation tools for ratio practice. The PITI and escrow lesson explains the permanent monthly housing payment, while the New York mortgage recording tax lesson explains a separate closing-cost issue.

Next in the finance sequence is the comparison of FHA, VA and Rural Housing Service loans. For application practice now, use the free 19-subject sampler. It is an equal-subject study tool, not an official state exam distribution or pass predictor.

Sources and verification notes

This lesson was checked against the following primary or official sources on August 27, 2026:

1. New York State Department of State, Real Estate Salesperson 77-Hour Curriculum, Subject 5.
2. Consumer Financial Protection Bureau, What is a conventional loan?, conventional, conforming and nonconforming definitions.
3. Federal Housing Finance Agency, 2026 conforming loan limit announcement, baseline and national ceiling.
4. Federal Housing Finance Agency, 2026 full county loan limit table, New York county and unit limits.
5. Federal Housing Finance Agency, 2026 conforming loan limit FAQs, county method and high-cost formula.
6. Fannie Mae, 2026 loan limits, baseline, high-cost and unit tables.
7. Fannie Mae Selling Guide, August 5, 2026, B5-3.1-01 through B5-3.1-03 construction-to-permanent guidance.
8. Consumer Financial Protection Bureau, What is a construction loan?, construction purpose, advances and conversion.
9. Consumer Financial Protection Bureau, TRID construction-loan FAQs, coverage and separate or combined disclosures.
10. New York Lien Law section 2, building loan contract and mortgage definitions.
11. New York Lien Law section 3, mechanic's liens on real property.
12. New York Lien Law section 13, priority and trust-fund covenant.
13. New York Lien Law section 22, building loan contract filing and contents.

Loan limits, enterprise policies and lender products can change. A lender applies the limit and underwriting rules effective for its transaction and delivery. This article provides independent exam preparation and general education. It is not legal, lending, tax, engineering or construction advice, is not affiliated with or endorsed by the New York State Department of State and does not reproduce state exam questions.