Mortgage loan limit rises above $1.1M as home prices surge

The Federal Housing Finance Agency's (FHFA) new conforming loan limits for 2024 mean homebuyers can now get larger mortgages backed by Fannie Mae and Freddie Mac. 

The new mortgage limit for conventional loans backed by Fannie and Freddie will be $766,550, an increase of $40,350 from 2023. In high-cost areas where 115% of the local median home value is larger than $766,550, homebuyers will be permitted to use the high-cost area loan limit, which is 150% of typical loan limits. That pushes the new limit for high-cost areas to $1,149,825. 

The decision follows the exponential gain in home prices across the U.S., even as mortgage rates increased. Home prices rose 5.5% between the third quarter of 2022 and the third quarter of 2023 and were up 2.1% compared to the second quarter of 2023, according to the FHFA House Price Index.

"The new loan limits essentially mean that homeowners who have seen price appreciation can refi into a Fannie or Freddie loan," Charles Williams, founder and CEO of real estate and mortgage behavioral data provider Percy. "Basically, with the limit raised to $766,550 from $726,200, the FHFA is keeping its lending guidelines in lockstep with home price appreciation. The same goes for the FHA. This is good news also for potential homebuyers who want to buy at the higher end of the new limit."

If you currently have a jumbo loan that you want to move into a conventional mortgage loan, or your home price has appreciated and is now covered under the new limits, you could consider refinancing to save on your monthly payment. You can visit Credible to compare multiple mortgage lenders at once and choose the one that is the best fit for you.

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FHA raises limits, too

The Federal Housing Administration (FHA) announced limits for 2024 for its Single Family Title II forward and Home Equity Conversion Mortgage (HECM) insurance programs.  Loan limits for FHA forward mortgages will rise in 3,138 counties and will remain unchanged in 96 counties in the coming year due to house price appreciation during the first half of 2022.

FHA loans are insured by the Department of Housing and Urban Development (HUD). FHA loans offer down payments as low as 3.5%, credit scores as low as 580, and a flexible debt-to-income ratio, helping more home buyers qualify, especially first-time home buyers.

 "The statutory loan limit increases announced today reflect the continued rise in home prices seen throughout most of the nation in 2023," Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. "The increases to FHA's loan limits will enable homebuyers to use FHA's low-down-payment financing to access homeownership at a time when a lack of affordability threatens to shut well qualified borrowers out of the market."

The National Housing Act (NHA) requires the FHA to set single-family forward mortgage loan limits based on a formula that uses county or Metropolitan Statistical Area (MSA) home sale data to derive new loan limits for the three different cost categories established by the law.  

The FHA established its floor and ceiling loan limits based on the national conforming loan limit set by the FHFA ($766,550). FHA's 2024 minimum national loan limit floor of $498,357 for a one-unit property is 65% of the national conforming loan limit.  

Any area where the loan limit exceeds this floor is considered a "high-cost area." In high-cost areas, the FHA establishes varying loan limits above the floor based on the median home price in each area. The maximum loan limit ceiling for high-cost areas is $1,149,825, which is 150% of the national conforming loan limit. The FHA adjusts forward mortgage limits for Alaska, Hawaii, Guam and the U.S. Virgin Islands to account for higher construction costs.

The HECM maximum claim amount will increase to $1,149,825 from $1,089,300 for FHA case numbers assigned on or after January 1, 2024. 

If you are interested in taking out a mortgage, you can use an online marketplace to compare your options. Visit Credible to compare multiple lenders at once and choose the one with the best option for you.

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Down payments at a record high

Higher loan limits help consumers access larger home loans but don't help with down payments. Higher mortgage rates have pushed buyers to consider larger down payments as they look to hedge higher monthly mortgage loan payments, according to a Realtor.com report.

Down payments rose by 14.7% in the third quarter of 2023 and the median down payment amount was $30,000. The typical down payment as a dollar amount increased in all but 11 states. Washington D.C., followed by Alaska, Montana, Connecticut and Rhode Island, saw the most considerable down payment growth in 2023. Down payments as a share of purchase price fell in four states: Idaho, Arizona, Texas and Utah. 

"Elevated mortgage rates have raised the cost of financing a typical listed home with a 20% down payment by over $166 (or 7.4%) when compared to last year," Xu said. "To maintain the same monthly payment as one year ago, a buyer would need to increase the down payment to 25.5%, requiring an upfront payment of more than $23,300."

If you're looking to reduce your home buying costs, it could benefit you to compare your options to find the best mortgage rate. Credible can help you easily compare interest rates from multiple lenders in minutes.

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