What are conforming loan limits, and why are they increasing?

November 28, 2023

Expert insights on how loan limits affect the housing market and why they changed for 2024.

 

Prospective homebuyers in 2023 faced another challenging year of increasing home prices, rising mortgage rates and decreasing inventory. If you’ve been paying attention to the real estate market, you’ve probably heard about the recent adjustment to conforming loan limits. U.S. Bank offers perspective on why this occurred. Read on to learn what conforming loan limits are and how they impact the housing market.

 

Conventional versus jumbo mortgages

Conforming loan limits, at their core, are used to separate conventional loans from jumbo loans. Fannie Mae and Freddie Mac, sometimes referred to as government sponsored enterprises (GSEs), set requirements like down payments, minimum credit scores and documentation for mortgages they purchase. Additionally, the Federal Housing Finance Agency (FHFA), which regulates the GSEs, sets guidelines on maximum loan sizes (i.e., conforming loan limits) that qualify for purchase by Fannie Mae and Freddie Mac, helping them manage their risk when purchasing conventional mortgages from lenders.

Jumbo loans are mortgages that exceed these conforming loan limits. Unlike conventional mortgages, jumbo loans cannot be purchased by Fannie Mae and Freddie Mac. Instead, they generally must be maintained by the lender for the entire life of the loan. This puts increased risk on lenders and drives up interest rates for homebuyers.

 

Supporting homebuyers through the secondary mortgage market

Conventional mortgages are designed to benefit the average homebuyer, ensuring that the housing market is affordable for most people. Fannie Mae and Freddie Mac help make this possible by purchasing conventional mortgages from lenders. When a buyer takes out a home loan, lenders can sell the mortgage to Fannie Mae and Freddie Mac, who bundle numerous mortgages together to create securities. These securities are later sold on the secondary market.

GSEs take individual mortgage loans, buy them from lenders and then pool them – or package them together – into securities. There might be one security that has a thousand mortgages from all different parts of the country. Those thousand mortgages are sliced and diced into different tranches of risk that investors might want to buy.

When Fannie Mae and Freddie Mac buy a mortgage from a lender, they assume the associated risk and spread it between investors. If a homeowner defaults on their mortgage, the impact for lenders is significantly minimized because they've already sold off the mortgage to Fannie Mae and Freddie Mac. In turn, lenders are more likely to reduce interest rates.

Investors purchasing mortgage-backed securities benefit from the pooling together and repackaging of mortgages while also being guaranteed against the risk of homeowner default by Fannie Mae and Freddie Mac. Meanwhile, the GSEs benefit from the scale and diversification that makes the impact of a single mortgage default like a drop in the bucket compared to the more than $6 trillion of combined mortgage portfolios between both companies.

GSEs help make mortgages more accessible and affordable for borrowers by pooling risk and selling securities to investors, and they pull in additional investment money into the mortgage market, which helps make that happen.

 

Loan limits increase for 2024

Every November, the FHFA adjusts the conforming loan limits to reflect changes in the housing market. This helps ensure the average homebuyer can still get a conventional mortgage, even as housing costs rise. The FHFA recently announced that the baseline conforming loan limit for 2024 will be $766,550 for one-unit properties, an increase of $40,350 from 2023. In designated high-cost areas, the new ceiling loan limit for one-unit properties will be $1,149,825, which is 150% of $766,550.

 

FHA loan limits

As another key player in the housing market, the Federal Housing Administration (FHA) is required by statute to follow the example of the FHFA when setting loan limits for low-income and first-time homebuyers. Not surprisingly, they announced similar adjustments to their maximum loan limits this November.

 

Get more insights from a U.S. Bank mortgage loan officer about changes in the housing market.

Related content

Is raising backyard chickens a good idea financially?

7 steps to prepare for the high cost of child care

What are conforming loan limits and why are they increasing

How to save for a wedding

How I did it: Turned my side hustle into a full-time job

Multiple accounts can make it easier to follow a monthly budget

For today's relocating home buyers, time and money are everything

Crypto + Relo: Mobility industry impacts

Can ABL options fuel your business — and keep it running?

Evaluating interest rate risk creating risk management strategy

Tech lifecycle refresh: A tale of two philosophies

Don’t underestimate the importance of balancing your checking account

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

Test your loan savvy

Webinar: Mortgage basics: What’s the difference between interest rate and annual percentage rate?

How do I prequalify for a mortgage?

Can you take advantage of the dead equity in your home?

Webinar: Mortgage basics: How much house can you afford?

Home equity: Small ways to improve the value of your home

Webinar: Mortgage basics: Finding the right home loan for you

Is a home equity line of credit (HELOC) right for you?

8 steps to take before you buy a home

Webinar: Mortgage basics: 3 Key steps in the homebuying process

Webinar: Mortgage basics: Buying or renting – What’s right for you?

How to use your home equity to finance home improvements

Webinar: Mortgage basics: What is refinancing, and is it right for you?

These small home improvement projects offer big returns on investment

Should you get a home equity loan or a home equity line of credit?

5 things to avoid that can devalue your home

6 questions to ask before buying a new home

What is refinancing a mortgage?

What is an escrow account? Do I have one?

Quiz: How prepared are you to buy a home?

10 questions to ask when hiring a contractor

What to know when buying a home with your significant other

Webinar: Mortgage basics: How does your credit score impact the homebuying experience?

What is a home equity line of credit (HELOC) and what can it be used for?

Dear Money Mentor: When should I refinance a mortgage?

Building a dream home that fits your life

Are professional movers worth the cost?

First-time homebuyer’s guide to getting a mortgage

Beyond the mortgage: Other costs for homeowners

How I did it: Bought my dream home using equity

Get more home for your money with these tips

Saving for a down payment: Where should I keep my money?

4 ways to free up your budget (and your life) with a smaller home

How I did it: Built living spaces to support my family

Community activist achieves dream of homeownership

Bringing economic opportunity to underserved communities one home at a time

Managing the impacts of appraisal gaps in a hot housing market

Is it the right time to refinance your mortgage?

Spring cleaning checklist for your home: 5 budget-boosting tasks

Overcoming high interest rates: Getting your homeownership goals back on track

Is it cheaper to build or buy a house

Money Moments: How to finance a home addition

The lowdown on 6 myths about buying a home

Dear Money Mentor: What is cash-out refinancing and is it right for you?

Home buying myths: Realities of owning a home

House Hacks: How buying an investment property worked as my first home

For today's homebuyers, time and money are everything

Should you buy a house that’s still under construction?

10 uses for a home equity loan

Know your debt-to-income ratio

Your guide to breaking the rental cycle

Is a home equity loan for college the right choice for your student

How to apply for federal student aid through the FAFSA

Which is better: Combining bank accounts before marriage — or after?

Save time and money with automatic bill pay

Is it time to get a shared bank account with your partner?

It's possible: 7 tips for breaking the spending cycle

What to consider before taking out a student loan

Here’s how to create a budget for yourself

Common unexpected expenses and three ways to pay for them

9 simple ways to save

Do you and your fiancé have compatible financial goals?

Is online banking safe?

Recognize. React. Report. Caregivers can help protect against financial exploitation

How I did it: Paid off student loans

The A to Z’s of college loan terms

Costs to consider when starting a business

Questions to ask before buying a car

Investing in capital expenditures: What to discuss with key partners

Webinar: Uncover the cost: Building a home

Webinar: Mortgage basics: Prequalification or pre-approval – What do I need?

Adulting 101: How to make a budget plan

You can take these 18 budgeting tips straight to the bank

Your financial aid guide: What are your options?

How I did it: Learned to budget as a single mom

Changes in credit reporting and what it means for homebuyers

An investor’s guide to marketplace lending

ABL mythbusters: The truth about asset-based lending

What is a CLO?

How you can take advantage of low mortgage rates

How to get started creating your business plan

Buying a home Q&A: What made three homeowners fall in love with their new home

Personal loans first-timer's guide: 7 questions to ask

5 ways to maximize your garage sale profits 

What you need to know about renting

What you should know about buying a car

What you need to know before buying a new or used car

Take the stress out of buying your teen a car

How to choose the best car loan for you

Practical money skills and financial tips for college students

Personal finance for teens can empower your child

Co-signing 101: Applying for a loan with co-borrower

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

How to use debt to build wealth

10 ways to increase your home’s curb appeal

Money Moments: Tips for selling your home

How I did it: My house remodel

Everything you need to know about consolidating debts

Student checklist: Preparing for college

Webinar: Uncover the cost: College diploma

How I did it: Bought a home without a 20 percent down payment

Crypto + Homebuying: Impacts on the real estate market

Your quick guide to loans and obtaining credit

Military homeownership: Your guide to resources, financing and more

Webinar: Uncover the cost: Home renovation

4 questions to ask before you buy an investment property

Collateral options for ABL: What’s eligible, what’s not?

Preparing for homeownership: A guide for LGBTQ+ homebuyers

Parent checklist: Preparing for college

Are you ready to restart your federal student loan payments?

Prioritizing payroll during the COVID-19 pandemic

Closing on a house checklist for buyers

Evaluating interest rate risk creating risk management strategy

Housing market trends and relocation impact

How to fund your business without using 401(k) savings

How to maximise your infrastructure finance project

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

Checklist: 10 questions to ask your home inspector

How to establish your business credit score

Checklist: 6 to-dos for after a move

Tips for realtors to help clients get their homeownership goals back on track

Pros and cons of a personal line credit

3 tips for saving money when moving to a new home

Maximizing your infrastructure finance project with a full suite trustee and agent

What’s the difference between Fannie Mae and Freddie Mac?

High-cost housing and down payment options in relocation

At your service: outsourcing loan agency work

Streamline operations with all-in-one small business financial support

Opening a business on a budget during COVID-19

How a small business is moving forward during COVID-19

When to consider switching banks for your business

5 tips to help you land a small business loan

Checklist: financial recovery after a natural disaster

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.