What Does the 2024 Conforming Loan Limit Increase Mean for Homebuyers?

What Does the 2024 Conforming Loan Limit Increase Mean for Homebuyers?

On Nov. 28, 2023, the Federal Housing Finance Agency (FHFA) announced the conforming loan limit (CLL) will increase in 2024 from $726,200 to $766,550. This is an increase of 5.56% or $40,350 from 2023. If you’re planning to purchase or refinance a home in 2024, this article discusses what conforming loans are and what the new limits might mean for you.

What is a Conforming Loan?

A conforming loan is a mortgage that falls within the loan limit amounts set by the FHFA and the underwriting guidelines established by Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs). For some borrowers, conforming loans can be easier to acquire and less costly than nonconforming loans but typically require:

• A minimum credit score of 620
• 43% debt-to-income-ratio
• 3% down payment
• Two-year history of employment/income

Why are the Increased Conforming Loan Limits a Good Thing?

As the price of homes continued to increase this past year, homebuyers and homeowners wanting a mortgage loan that exceeds the 2023 conforming loan limit ($726,200) would be forced to acquire a more expensive, non-conforming jumbo loan for example. The 2024 CLL increase makes it easier for these homebuyers to qualify for a more expensive home with the conforming loan option still on the table.

How are Conforming Loan Limit Increases Calculated?

The Housing and Economic Recovery Act (HERA) requires FHFA to adjust conforming loan limits each year to reflect the change in the average U.S. home price. According to the most recent FHF​A House Price Index^® (FHFA HPI), home prices increased by an average of 5.56%, between Q3 2022 and Q3 2023. Therefore, the limits in 2024 will increase by the same percentage. While the new limit of $766,550 applies to most of the United States, it’s important to note the actual dollar amounts can vary if you live in a high cost of living area. This map shows the actual limits for each county.

What is the Difference Between a Conventional Loan and a Conforming Loan?

A conventional loan is a mortgage loan secured by a private lender, such as your bank, and receives no federal backing, as one would  with an FHA loan, VA loan or USDA loan. When conventional loans fall within the limits set by the FHFA and meet certain underwriting guidelines, they are considered “conforming” and can later be sold to Fannie Mae or Freddie Mac. This a benefit to banks because it allows them to increase their capital to offer more loans to more customers.

Why are There Limits to Conforming Loans?

Limits are set for conforming loans so that Fannie Mae and Freddie Mac can serve more banks and homebuyers across the country. The two entities prefer to fund a higher number of smaller mortgages than a smaller number of large mortgages.

What if I Need a Mortgage Over the Conforming Limit?

If you are shopping for a mortgage in 2024 that exceeds $766,550, there are options available. Most financial institutions offer jumbo loans, which are a type of mortgage loan that exceeds the conforming limits. However, they often have more stringent qualification guidelines so be sure discuss with a loan officer to determine the right mortgage loan type for you.

Jumbo loans typically require:

• A minimum credit score of 700
• 45% debt-to-income-ratio
• 10-20% down payment or more
• Potentially higher interest rates
• Higher scrutiny of credit and income history

The 2024 Conforming Loan Limit increase means more purchasing power for qualified homebuyers looking to purchase or refinance a home in 2024. If you have questions about the new limits or any other mortgage needs, an FNBO Mortgage Loan Officer can help.