November 29, 20234-minute read
Author: Victoria Araj
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When you get a mortgage, there’s a limit to how much you can borrow. On an individual level, this will be determined by how creditworthy you are and how much you can afford to spend each month. At the industry level, lenders are limited by how much they can lend to borrowers if they want their loans to conform to the standards set forth by the Federal Housing Finance Agency (FHFA). Conventional loans that meet these standards are called conforming loans. The FHFA just announced updated conforming loan limits for 2024. Spoiler alert: Your buying power is increasing.
What Is The Conforming Loan Limit?
The FHFA sets conforming loan limits for Fannie Mae and Freddie Mac, the two government-sponsored enterprises that it regulates.
Fannie Mae and Freddie Mac purchase mortgages that meet their standards from lenders and then repackage them into mortgage-backed securities for investors. This process gives lenders the liquidity needed to continue providing home buyers with affordable mortgage loans.
Both Fannie Mae and Freddie Mac have additional criteria for the loans they purchase, including minimum credit scores, minimum down payments and maximum debt-to-income ratios (DTI). But in general, when people talk about conforming loan standards, they’re talking about loan limits.
2024 Conforming Loan Limits
The baseline conforming loan limit for 2024 is $766,550 – up from $726,200 in 2023. The limit is higher in Alaska and Hawaii, where the number is $1,149,825 for a single-unit property. A full table covering up to four units is below for reference:
2024 Conforming Loan Limits | ||
Number of Units | Lower 48 | Alaska and Hawaii |
1 | $766,550 | $1,149,825 |
2 | $981,500 | $1,472,250 |
3 | $1,186,350 | $1,779,525 |
4 | $1,474,400 | $2,211,600 |
If you need a home loan that exceeds the conforming loan limit for your county, you’ll have to get a jumbo loan, which allows higher loan limits. However, these loans are typically harder to qualify for, requiring higher credit scores and larger down payments.
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How The Conforming Loan Limits Work In 2024
Conforming loan limits are tied to home prices. Each year, the FHFA updates its baseline loan limit based on its House Price Index (HPI) report, which tracks the average increase in home values over the previous year. The new loan limits are calculated each year based on third-quarter data from the FHFA HPI. In 2024, Rocket Mortgageis expecting an increase of about 5.56%. Conforming loans are great for consumers because they typically come with lower interest rates than other non-conforming loan types. If you’re trying to purchase a home in which the sale price exceeds the conforming loan limit for your area, increasing your down payment so that you stay within the limit can be one way to be able to enjoy the benefits of a conforming loan without having to take out a jumbo loan.
Conforming Loan Limits In High-Cost Areas
Home prices vary quite a bit from state to state, and even from county to county. This makes having a single conforming loan limit for the entire country difficult – after all, it’s hard to compare home prices in rural Ohio to home prices in Manhattan, one of the most expensive real estate markets in the country. This is why the FHFA has a higher limit for areas it deems to be “high cost,” a designation based on an area’s median home values compared to the baseline conforming loan limit. The exact conforming loan limit varies depending on the median home value in a given area, up to 150% of the baseline conforming loan limit. To see what the current limit is in your county, use the FHFA’s interactive map. To see what this might look like in practice, let’s say you’re considering buying a $800,000 house in California. If you were to buy that house in San Bernardino County, which isn’t currently listed as an FHFA high-cost area, you’d likely need to take out a jumbo loan, since you’d be exceeding the $766,550 baseline loan limit. However, Los Angeles County is traditionally one of the most expensive areas in which to buy a house in the U.S. It's at the top end of the scale ($1,149,825 for a single-unit home). You would be able to buy the house without a jumbo loan. In addition to being the ceiling in high-cost areas, the highest conforming loan figure for a given number of units is also the loan limit in Alaska and Hawaii.An Example Of High-Cost Area Limits
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What To Consider Before You Borrow More Than The Conforming Loan Limit
If you’re considering purchasing a home outside of the conforming loan limits, be sure you understand whether you can afford a non-conforming loan and what this type of loan would mean for your finances. The larger the loan is, the higher your monthly payment will be. This is especially important to consider in high-cost areas. Even with higher loan limits, much of the local inventory could still exceed the high-cost loan ceiling. What would a jumbo loan mean for your finances? The upfront cost alone can be prohibitive for many borrowers. While conforming loans allow down payments as low as 3%, most jumbo loan borrowers are required to put down a minimum of 20%. They’ll also need to have a credit score in the 700s and a DTI of 45% or lower to qualify. If you’re able to meet these requirements, a jumbo loan may be beneficial for you. But before you enter the home buying process, be sure you know what the loan limits are for your area and that you understand what a conforming versus a non-conforming loan would mean for your financial situation.Things To Consider Before Using A Jumbo Loan
The Bottom Line: Remember Loan Limits If You’re Purchasing A High-Cost Home
If you plan on purchasing your home with a mortgage and have a sizable home buying budget, it’s important to understand what the maximum loan limits are in your county. While other loan types, such as jumbo loans, can remove the barrier of having to stay within a certain price limit, that means forgoing the benefits of a conforming loan. If you’re considering purchasing a home of your own, take action and start your mortgage application with the Home Loan experts at Rocket Mortgage.
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As a mortgage expert with a deep understanding of the intricacies of the housing finance landscape, I can confidently dissect the key concepts presented in the article. My expertise is grounded in a comprehensive knowledge of mortgage lending, including the factors influencing loan limits, the role of government-sponsored enterprises like Fannie Mae and Freddie Mac, and the broader dynamics of conforming and non-conforming loans.
Firstly, the article discusses the conforming loan limits set by the Federal Housing Finance Agency (FHFA) for 2024. The FHFA determines these limits for Fannie Mae and Freddie Mac, entities that purchase mortgages from lenders and package them into mortgage-backed securities. The conforming loan standards include criteria such as minimum credit scores, down payments, and debt-to-income ratios.
For 2024, the baseline conforming loan limit is $766,550, a notable increase from the previous year. However, higher limits apply in Alaska and Hawaii due to the unique housing market conditions in these states. The article provides a detailed table outlining the conforming loan limits based on the number of units and geographic location.
The piece explains how conforming loan limits are tied to home prices and are recalculated annually using the FHFA House Price Index (HPI) report. This index tracks the average increase in home values, with the expectation of a 5.56% increase in 2024, according to Rocket Mortgage.
Importantly, the article delves into the concept of high-cost areas, where home prices vary significantly. To address this discrepancy, the FHFA designates certain areas as "high cost," allowing for higher conforming loan limits, up to 150% of the baseline limit. The article offers an illustrative example of how this works in practice, using California as a case study.
Furthermore, the piece emphasizes the considerations for borrowers looking to exceed conforming loan limits, particularly in high-cost areas. It highlights the option of jumbo loans, which have higher limits but stricter qualification requirements, including higher credit scores and larger down payments.
In conclusion, the article emphasizes the importance of understanding loan limits, especially when purchasing high-cost homes. It advises prospective homebuyers to be aware of the financial implications of choosing conforming or non-conforming loans and to consider the trade-offs involved in terms of monthly payments, upfront costs, and eligibility criteria.
