Conforming Loan Limits: What They Are and How They Impact You

If you are planning to buy or refinance a home next year, we have some great news for you!

In 2024, the Federal Housing Finance Agency (FHFA) has announced an increase in the conforming loan limit for all counties in the United States. This adjustment is a response to the significant home appreciation observed in 2023. As a result, there are several noteworthy changes and benefits:

1. Increased Conforming Loan Limits: The conforming loan limits for one-unit properties have been raised in most counties. In 2024, the maximum conforming loan limit for these properties will be $766,550. This represents a substantial increase of $40,350 compared to the 2023 limits.
2. Lower Interest Rates: With homes now eligible for conforming loans that were previously categorized as requiring jumbo mortgage loans, borrowers can enjoy the advantages of lower interest rates. Conforming loans typically offer more favorable terms, making homeownership more affordable.
3. Less Restrictive Qualification Requirements: Conforming loans often have less stringent qualification criteria compared to jumbo mortgages. This change opens up opportunities for a wider range of homebuyers to secure financing.
4. High-Cost Real Estate Markets: In areas where the local median home value is significantly higher than the baseline conforming loan limit, there is a separate limit. In 2024, the maximum conforming loan limit for such high-cost markets will be $1,149,825. This is an increase of $60,525 from the previous year.

Here is a map showing the new conforming loan limits in all counties across the country.

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What is a Conforming Loan?

Since the 2008 financial crisis, Fannie Mae and Freddie Mac have become well-known names among consumers. These two entities operate under the oversight of the FHFA and play a crucial role in the mortgage market. Their primary functions include purchasing mortgages, bundling them into mortgage-backed securities, and then selling these securities to investors.

A "conforming mortgage" refers to a loan that adheres to the specific purchase requirements set by Fannie Mae and Freddie Mac. These requirements encompass various factors such as the down payment, income, credit score, and debt-to-income ratio of the borrower. Another critical factor is the loan amount, which brings us to the concept of the "conforming loan limit."

Fannie Mae and Freddie Mac establish a maximum limit for conforming loans. Loans that exceed this limit fall into the category of "jumbo" or "nonconforming" loans. Here are the key points to remember:

• Conforming Mortgages: These loans meet the criteria outlined by Fannie Mae and Freddie Mac, ensuring they align with specific standards regarding borrower qualifications and loan amounts. Fannie Mae and Freddie Mac will only purchase loans that fall within the conforming loan limit. Any home with a purchase price exceeding this limit will require financing through a jumbo loan.

• Jumbo Loans: Jumbo loans, also known as nonconforming loans, are typically associated with stricter qualification requirements due to their larger loan amounts. Borrowers seeking to finance high-value homes will need to meet these more rigorous criteria.

NOTE: The terms 'conforming' and 'conventional' are often used interchangeably, but there are some differences. A conventional loan just refers to a mortgage that is NOT backed by a government agency. Simply put, a conventional mortgage is any loan that is not issued by the Federal Housing Administration (FHA), the Department of Veterans' Affairs (VA), or the United States Department of Agriculture (USDA).

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How Do Conforming Loan Limits Impact You?

One of the advantages of conforming loans is that they offer competitive interest rates. Since these loans are backed by Fannie Mae and Freddie Mac, lenders are more willing to offer lower rates to borrowers who meet the criteria. This can result in significant savings over the life of the loan.

Another benefit of conforming loans is that they often have more flexible credit requirements. While a good credit score is still important, borrowers with a slightly lower credit score may still qualify for a conforming loan. This can be especially helpful for first-time homebuyers who may not have an extensive credit history.

When conforming loan limits increase, it means more homebuyers are able to take advantage of these benefits.

For example, let's say you tried to buy a home in Salt Lake County in Utah in 2023. You needed to get a mortgage for $750,000, but because your loan amount was higher than the 2023 conforming loan limit of $726,200, you had to apply for a jumbo loan.

Unfortunately, you only had 5% saved up for a down payment and your credit score was not high enough to qualify for a 5% down jumbo loan.

But in 2024, things are changing! Conforming loan limits will be increased to $766,550, which means the home you want can purchased with a conforming loan. Not only will you qualify for the loan, but it's likely you will enjoy a lower interest rate than you would have gotten with the jumbo loan. You may even be able to lower your down payment to 3.5% and reallocate those funds to pay off some other debt and saving even more money every month.

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The Bottom Line

If you have been trying to qualify for a home loan but have been having some trouble getting a jumbo loan, you may soon be able to qualify for a conforming loan with better terms. If you’re in the market to buy a home, now is the time to start the mortgage process so you are ready to purchase when these loan limits change next year.