Are you planning on buying a new home or refinancing yoru current one this upcoming year? If so, then you’ll need to know about the 2024 conventional loan limit increases!
These changes can have a significant impact on your ability to secure the financing you need for your home purchase or refinance, and it’s essential to understand what’s at stake.
We’ll provide you with a comprehensive overview of the forthcoming loan limit increases and how they could affect you. Expect to have all your questions answered and gain a deeper understanding of the topic – we’ll bust through all the financial jargon for you in this post.
What are Conventional Loan Limits?
Before we dive into the numbers, let’s talk vocabulary – what are conventional loans and why do they matter?
Simply put, these are mortgage loans that are not guaranteed or insured by the government, unlike Federal Housing Administration (FHA) or Veterans Affairs (VA) loans. Conventional loans are often preferred by borrowers who have good credit, a stable source of income, and a sizable down payment – they’re really the go-to for most people.
The main purpose of conventional loans is to provide financing for homebuyers who don’t meet the criteria for government-backed loans. Conventional loans also offer more flexibility in terms of loan terms, such as adjustable or fixed interest rates, and the ability to borrow larger amounts.
The history of conventional loans dates back to the 1930s, when the Federal National Mortgage Association (Fannie Mae) was created to increase the availability of mortgage credit. In the 1970s, Freddie Mac (Federal Home Loan Mortgage Corporation) was established as a competitor to Fannie Mae. Today, these two government-sponsored enterprises (GSEs) are responsible for purchasing the majority of conventional loans from lenders.
So what are loan limits?
Essentially, these are the maximum amount of money that a lender can loan to a borrower for a conventional loan, with limits set by the Federal Housing Finance Agency (FHFA) and varying depending on the location of the property. A house in a high-cost area will have a higher limit than in a low-cost area.
These limits are adjusted annually by the FHFA to reflect changes in both the housing market as well as inflation.
The 2024 Conventional Loan Limits
Below, we’ll explain what you need to know about the 2024 conventional loan limits, including the standard and high-cost area limits, and how they might impact you as a borrower
Standard Conventional Loan Limits
First things first, let’s define what we mean by “standard” loan limits. These are the limits that apply to most of the country, where housing prices are not considered “high-cost” or particularly expensive relative to other areas.
The baseline limit for 2024 is $766,550 for a single-family home, which is up from $726,200 in 2023.
This means that you can borrow up to $766,550 in most areas without having to go through a “jumbo” loan process, which typically involves stricter underwriting requirements, higher interest rates, and other challenges.
It’s worth noting that the baseline limit is not the same everywhere. In certain areas where housing prices are particularly high, the baseline limit can be higher.
For example, in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline limit is $1,149,825 for 2024. This is called a “high-cost area,” and we’ll discuss it in more detail in the next section.
So, how do you qualify for a conforming loan?
You’ll need to meet certain financial standards, such as a minimum credit score, debt-to-income ratio, and proof of income. The exact requirements can vary depending on the lender and other factors, but generally speaking, you’ll need a credit score of at least 620 and a debt-to-income ratio of no more than 43%.
It’s also worth noting that even if you meet the qualifications for a conforming loan, you’ll still want to shop around for the best deal. Different lenders may offer different interest rates, closing costs, and other terms, so it pays to do your research and compare offers before committing to a loan.
High-Cost Area Conventional Loan Limits
Now, let’s talk about high-cost areas. These are the areas, as mentioned earlier, where housing prices are significantly higher than the national average, which means borrowers in these areas may need to borrow more than the standard limit in order to buy a home.
For 2024, the high-cost area limit is $1,149,825 for a single-family home, up from $1,089,300 in 2023.
So, what are the benefits and drawbacks of borrowing above the conforming limit? On the one hand, borrowing more may give you access to a wider range of homes and neighborhoods, as well as more competitive interest rates and terms. On the other hand, it can also mean higher monthly payments, a more rigorous underwriting process, and potentially higher interest rates.
You should also know that if you do need to borrow above the conforming limit, you’ll likely need to come up with a larger down payment as well. Most lenders require a down payment of at least 10% for jumbo loans, compared to as little as 3% for conforming loans. You’ll need to have more cash on hand, which can be a challenge for some borrowers.
Borrowing Above the Conventional Loan Limit
So, what should you do if you’re considering borrowing above the conforming limit?
First, weigh the pros and cons carefully and make sure you’re comfortable with the potential risks and costs.
Second, shop around for lenders who specialize in jumbo loans and can offer you the best rates and terms.
And third, make sure you have a solid financial plan in place that includes a healthy emergency fund and a realistic budget for your monthly payments.
Conventional vs. Other Loan Options
If you’re shopping around for a home loan and you’re confused about the myriad of loans available to you, you’re not alone. The good news is that there are plenty of options available to homebuyers, but the bad news is that navigating all of these options can be head-scratching, at the very least.
To recap, a conventional loan is a mortgage that is not backed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). It is usually offered by private lenders and banks to borrowers with good credit and a stable income.
An FHA loan, on the other hand, is a mortgage that is insured by the government through the FHA. This type of loan is designed to help first-time homebuyers and those with lower credit scores and income qualify for a mortgage.
A jumbo loan is a type of mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac, the government-controlled mortgage companies. These loans are usually used to finance high-end properties and require a larger down payment and higher credit score.
Lastly, a piggyback loan, also known as an 80/10/10 loan, is a type of loan that combines a first mortgage for 80% of the home’s value and a second mortgage for 10% of the home’s value. The borrower puts down 10% as a down payment to avoid paying for private mortgage insurance (PMI).
Now that we’ve explored the pros and cons of each loan type, how do you figure out which one is right for you? Consider these factors:
- Credit Score: If you have a good credit score, a conventional loan may be the best option for you. If your score is lower, an FHA or piggyback loan may be a better fit.
- Down Payment: How much can you put down on the home? If you can afford a larger down payment, a conventional loan may be the way to go. If not, an FHA or piggyback loan may be a better option.
- Loan Amount: How much do you need to borrow? If it’s more than the conforming loan limit, a jumbo or piggyback loan may be your only options.
- Property Type: Is the property you’re buying eligible for each type of loan? FHA loans have certain property standards that must be met, while jumbo loans are usually reserved for high-end properties.
When you’re shopping around, be sure to look at the APR (Annual Percentage Rate). This takes into account both the interest rate as well as any fees associated with the loan, which is a better indicator of how much you’ll really pay in total. On that note, ask about any fees – some lenders and some types of loans come with origination fees, underwriting fees, and other “hidden” charges.
And finally, remember that it’s not just about the loan limits. different lenders may offer different interest rates, down payment requirements, and loan terms. Make sure you’re comparing apples-to-apples when shopping around.
Tips for Finding the Best Financing Options
So with all these options, numbers, and data to consider, how do you choose the right loan program for you?
There are a few factors to keep in mind, such as the size of your down payment, your credit score, your debt-to-income ratio, and the length of time you plan to stay in your home. These variables can affect the type of loan and lender that would be the best fit for your specific needs.
Once you’ve narrowed down your options as to which type of loan you’d like, compare offers from multiple lenders to get the best deal possible. This might include looking at interest rates, fees, closing costs, and any other terms that might impact your decision.
Don’t be afraid to negotiate with lenders or to walk away from a potential deal if it doesn’t meet your expectations. It’s your money and your home, after all.
If you’re feeling overwhelmed by all this information – or it’s making your head spin! – working with a mortgage broker could be a great option for you. Brokers have access to a wide range of loan programs from various lenders and can help you navigate the process from start to finish. They can also offer personalized advice and support to help you find the financing option that’s best for you.
If you want to make the most of your mortgage options, then understanding the 2024 conventional loan limit increases is super important. By taking the time to process the new loan limits and the advantages they bring, you can secure a better interest rate, higher loan amounts – and ultimately, a better mortgage experience overall.
At Andes Mortgage, LLC, we strive to provide our clients with the most up-to-date information and resources around so they can make informed decisions about their finances.
So don’t wait any longer. Contact us today to discuss your options – your dream home is finally within reach, and we’re here to make it happen.