Conforming Loan Limits: A Guide for Homebuyers

Buying a house is a major life milestone. Besides finding the right one, navigating the maze of mortgage options available can be daunting. Plus, there are all the industry terms to know, like fixed rate, APR, and mortgage insurance premiums… Add to that changing conforming loan limits, and it’s easy to see why someone can feel overwhelmed and experience decision paralysis.

Conforming loan limit is a term that crops up when prospective homebuyers learn about financing. Let’s demystify conforming loan limits and why they matter in the mortgage industry. We break down who sets these limits and why they change. That way, you can make an informed decision about how to finance your home purchase. 

2024 Conforming Loan Limits

For first mortgages in the continental US, Puerto Rico, and the District of Columbia, the limit is $766,550. High-value areas such as Alaska, Hawaii, and Guam are set at $1,149,825. However, some counties in the continental US may meet the higher limit. These conforming loan limits are reset each year.

Note that the forward mortgage limits and home equity conversion mortgage (HECM) limits are different.

What Is a Conforming Loan?

A conforming loan strictly adheres to the guidelines set by Fannie Mae and Freddie Mac. These are government-sponsored enterprises (GSE) designed to buy conventional mortgages and free up capital for banks to make more loans. To make purchasing easier, they often bundle them in mortgage-backed securities, which need the loans to meet specific underwriting guidelines. 

Among the guidelines are a maximum loan amount. Any loan over this amount is considered a nonconforming loan. Nonconforming loans can have a higher interest rate because GSEs can’t guarantee them, so lenders see them as high risk. Among these would be “jumbo loans,” hard money, or private loans.

Conforming loan borrowers must also meet credit, income, and other financial requirements.

A conventional loan can be considered conforming or nonconforming. Most conventional loans are conforming, but there are exceptions. Nonconforming loans include those from the VA or USDA, where some borrowers do not put down a payment. A loan from a special program to help those with bankruptcy or foreclosures on their credit history is also a nonconforming loan.

What Are Conforming Loan Limits?

Conforming loan limits set the maximum loan amounts that Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs), are willing to buy or guarantee for conventional loans. 

These limits are significant because they influence home loan terms and availability. Loans within these established limits are easier to sell on the secondary loan market. Lenders can package conforming loans together and sell them to investors as mortgage-backed securities. They offer more favorable mortgage rates on these loans because they know they can profit from selling a package to investors. Selling also helps them stay liquid so they can write more loans.

If you opt for a conforming loan, chances are high that your mortgage originator will bundle and sell your mortgage. You may receive a notice a few months later that someone else now owns your loan. Behind the scenes, Freddie Mac and Fannie Mae purchased it and turned it into a mortgage-backed security. While these GSES may own your loan, the servicer–the company you make monthly mortgage payments to–likely will stay the same.

Where Can You Find Conforming Loans?

Most banks, credit unions, and mortgage lenders across the United States provide conforming loans. Since Fannie Mae and Freddie Mac back them, lenders see these loans as having less risk. And, they are more willing to offer these loans with reasonable terms like lower down payments and competitive interest rates. The associated risk is reduced since they can sell the loans to the GSEs.

Why Do Conforming Loan Limits Change Annually?

US home prices change every year due to a combination of inflation, appreciation, and buyer demand. Therefore, the baseline conforming loan limits adjust yearly to reflect average home price changes. In fact, the Federal Housing Finance Agency (FHFA) requires these adjustments. The idea is to ensure that the average American buyer can still access affordable financing as home values change. 

When home prices rise fast, the conforming loan limits may increase substantially to match the market conditions. Remember, the change is to facilitate continued access to affordable mortgages.

Who Changes the Limits?

The Federal Housing Finance Agency (FHFA) sets conforming loan limits yearly following the permanent formula created under the Housing and Economic Recovery Act of 2008 (HERA). 

The FHFA also oversees Fannie Mae and Freddie Mac, the two GSEs that back conforming loans. It uses its House Price Index (HPI) report and other data to assess real estate market price trends and adjust the loan limits.

If you hear the baseline loan limit for one-unit properties is changing, that means the conforming loan limit on single-family homes is adjusting to reflect new US average home prices.

What about high-cost areas?

The FHFA recognizes that some housing markets have significantly higher average prices in their housing market. Among these are Hawaii, Alaska, and the US Virgin Islands, but other above-average continental markets, such as San Francisco and Boston, can qualify. If the local median home value is greater than 115% of the baseline conforming loan limit, it’s considered a high-cost area.

The conforming loan limit values in these high-cost areas have a ceiling of 150% of the baseline limit. The  Housing and Economic Recovery Act (HERA) excludes Alaska, Hawaii, Guam, and the U.S. Virgin Islands from these ceiling loan limits. It also established criteria for setting the conforming loan limit values in the other high-cost counties. For example, in Monroe County, FL, the loan limit was $929,000 in 2024, reflecting the higher median house prices of the Florida Keys.

As an example, the high-cost area limit in 2024 was $1,149,825, or 150% of that year’s $766,550 conforming loan limit.

Are there maximums on non-conforming loans?

The only ceilings on non-conforming loans are set by the lenders initiating them. Part of being non-conforming is having no borrowing limit, as with jumbo loans. The loan also won’t be sold to a government agency, which makes it slightly more risky for the lender than conventional conforming loans. That’s why these jumbo mortgages or alternative financing often come with more stringent borrower requirements, like higher income ratios, credit scores, and down payments.

Understanding Conforming Loans

Median home prices in the US increased significantly from 2020 to 2024. Statutory provisions enabled conforming loan limits to grow with them.

But, as we know, real estate markets are constantly changing. A loan conforming to these limits may mean the difference between securing an affordable mortgage rate or taking out more expensive jumbo loans. Stay current with evolving maximum loan limits and discuss with your mortgage advisor how they may affect your home purchase. After all, knowing the game’s rules lends an advantage when navigating the complex world of home financing. See the most recent national conforming loan limit.

Updated November 2024