The baseline conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac in 2024 will be $766,550, up 5.5% compared to the current limit of $726,200, the Federal Housing Finance Agency (FHFA) announced Tuesday.
Conforming loan limits are increasing at a slower pace overall, mirroring home prices.
That’s because the FHFA’s conforming loan limit increase is based on a formula related to home-price data in the third quarter of each year. The regulator compares home prices year over year and adjusts the limit by the corresponding amount.
In 2022, the housing market was a little hotter than this year due to lower mortgage rates, pushing home prices up. Ultimately, the FHFA announced a 12.21% increase in loan limits for 2023. Moreover, for the first time, the federal government backed mortgages north of $1 million.
However, home prices increased 5.56% on average between the third quarters of 2022 and 2023. This is why the baseline conforming loan limit is going up in 2024 by the same percentage, the FHFA said in a statement.
The conforming loan limit increase will help buyers more easily finance one-unit homes at the higher end of the price scale. These loans would normally end at the jumbo market, which is dominated by banks. However, depositaries will be challenged by increased capital requirements in the coming years.
New conforming limits also reignite further debate about whether the government should be backing mortgages as high as $1 million.
For areas in which 115% of the local median home value exceeds the baseline conforming loan limit value, the Housing and Economic Recovery Act (HERA) establishes the ceiling at 150% of the baseline limit. Ultimately, the new ceiling loan limit for one-unit properties will be $1,149,825.
In addition, special statutory provisions establish different loan limits for Alaska, Hawaii, Guam and the U.S. Virgin Islands. In these areas, the baseline loan limits will be $1,149,825 for one-unit properties.
Over the past seven years, the baseline loan limit for Fannie and Freddie-backed mortgages has risen by $342,450.
Before the FHFA announcement, multiple nonbank lenders raised conforming limits on agency-eligible mortgages. Amid fierce competition in a shrinking mortgage market, companies are pressured to launch new initiatives to attract wholesale brokers and land more purchase business.
But lenders have been slower to raise limits this year, though, compared with a year ago. In 2022, as rates surged and borrowers dropped out of the market, lenders raised conventional loan limits in early September — well ahead of the November FHFA announcement
This year, Rocket Mortgage first raised limits in early October, pushing the conforming ceiling to $750,000 through its wholesale division. The company was followed by rivals Guaranteed Rate, United Wholesale Mortgage and others.
The 2008 Housing and Economic Recovery Act established a formula for increasing conforming loan limits for loans backed by Fannie Mae and Freddie Mac. The law mandated that the baseline could only rise after home prices returned to pre-recession levels.
That condition was met eight years later, in 2016, when the FHFA increased conforming limits for the first time in a decade. The ceiling doesn’t drop even if home prices fall, but it does rise if home prices increase year over year.
This is a welcome update and will help expand the number of buyers that are eligible for conforming programs.