The Basics of the New Limit
In 2024, the conforming loan limit is set at $766,550. This figure is crucial as it's the highest loan amount that Fannie Mae and Freddie Mac can back. Loans within this limit often benefit from easier approval processes and better interest rates. However, for loans exceeding this limit or not covered by these entities, other mortgage options are available. Conforming loans are a major portion of new mortgages.
Higher Limits for Costly Areas
The standard limit of $766,550 is just the base. In higher-cost areas, limits are elevated in line with local average home prices. Each county has specific limits, with the maximum cap reaching $1,149,825, or 1.5x the base limit.
The Process Behind Setting Limits
The Federal Housing Finance Agency (FHFA) oversees these limits. They use annual home price data, focusing on third-quarter trends, for year-over-year comparisons. If prices fall, the limit stays put but will not increase until prices rebound above the previous limit.
Market Dynamics and Affordability
With home prices rising annually by 5.5%, affordability remains a concern, especially with recent high interest rates. The new limits offer some relief, particularly for those needing a mortgage up to the new limit, up from the previous $726,200.
Implementation Across Lenders
These limits apply to loans acquired by Fannie Mae and Freddie Mac in 2023, with lenders adopting the new limits at varying speeds. Some lenders had already been offering near $750,000 limits, anticipating this increase.
FHA Loan Limits
The FHA loan limits, typically 65% of the FHFA conforming limit, are expected to be around $498,250, though this has not yet been officially announced.
Impact on VA Loans and Veteran Homebuyers
For Veteran home-buyers using VA loans, these conforming loan limit increases have a direct impact. VA loans are unique as they DO NOT have a maximum limit for buyers with full entitlement. However, the conforming loan limit can affect the down payment requirements when the Veteran is purchasing a home utilizing "second tier entitlement" or "bonus eligibility" as it's often called. Veterans can borrow above the calculated "bonus entitlement" limit, but will need to make a down payment in the amount of 25% of the amount over the determined limit. In a nutshell, the higher limits greatly enhance the "bonus entitlement" for Veterans. This means Veterans who have previously used their VA loan benefit could have additional entitlement available for use. The increased conforming loan limits can offer more flexibility and opportunities for Veterans looking to purchase or refinance multiple homes, especially effective in high-cost areas.
***Please reach out if you have any questions. The majority of Realtors and lenders do not specialize in VA loans, and there is a vast amount of misinformation surrounding VA loans floating around out there, so who you choose to work with matters more than ever before.
