2024 Conforming Loan Limits & Why They Matter

The vast majority of homebuyers finance a home purchase because it’s more money than they have on hand at one time. But why do some people borrow more than others and who sets the rules for how much people can borrow? Read on to learn about the revised 2024 conforming loan limits and what they mean to you as a future homebuyer. 

What are conforming loan limits?

Conforming loan limits are the maximum loan amounts that government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac are willing to purchase or guarantee. These limits are set by the Federal Housing Finance Agency (FHFA) and are intended to help ensure the stability and liquidity of the mortgage market.

When a mortgage loan falls within the conforming loan limits, it means that it meets the criteria for being purchased or guaranteed by Fannie Mae and Freddie Mac. This, in turn, makes it more attractive to lenders because they can sell these loans in the secondary mortgage market, reducing their risk.

The conforming loan limits are adjusted annually based on changes in the national average home price. In Minnesota, the 2024 limit for one-unit properties will be $766,550 (an increase of $40,350 from 2023.) 

What is a conforming vs conventional loan?

The terms "conforming" and "conventional" are related to mortgage loans but refer to different aspects of the loan.

Conforming Loan:

• A conforming loan is a mortgage loan that meets the criteria and guidelines set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

• Conforming loans must adhere to specific loan limits, which are established by the Federal Housing Finance Agency (FHFA). These limits vary by location and are based on the average home prices in a given area.

• Borrowers seeking conforming loans typically benefit from more favorable terms, such as lower interest rates and down payment requirements, because these loans can be sold in the secondary mortgage market to Fannie Mae and Freddie Mac.

Conventional Loan:

• A conventional loan is a mortgage that is not guaranteed or insured by a government agency. In contrast to government-backed loans (such as FHA, VA, or USDA loans), conventional loans are funded and insured by private lenders without direct government involvement.

• Conventional loans can be conforming or non-conforming. Conforming conventional loans adhere to the loan limits set by GSEs, while non-conforming loans (often referred to as jumbo loans) exceed those limits.

• Borrowers with strong credit and financial profiles may opt for conventional loans because they often offer competitive interest rates and terms.

In summary, all conforming loans are conventional loans, but not all conventional loans are conforming. Conforming loans meet specific criteria set by GSEs, while conventional loans, in a broader sense, refer to loans that are not backed by government agencies.

How do the 2024 conforming loan limits help homebuyers?

The conforming loan limits for 2024, like in previous years, can help buyers in several ways:

1. Access to Lower Interest Rates: 

Conforming loans typically come with lower interest rates compared to non-conforming or jumbo loans. By staying within the conforming loan limits, buyers may be eligible for more favorable interest rates, resulting in lower monthly mortgage payments.

2. Lower Down Payment Requirements:

Conforming loans often have more lenient down payment requirements compared to jumbo loans. Buyers may be able to secure a conforming loan with a smaller down payment, making homeownership more accessible.

3. Easier Qualification Standards:

GSEs like Fannie Mae and Freddie Mac have standardized qualification criteria for conforming loans. This can make the mortgage application process more streamlined and predictable for buyers. The standardized criteria may also provide more flexibility for borrowers with strong credit profiles.

4. Secondary Market Liquidity:

Lenders can sell conforming loans to Fannie Mae and Freddie Mac in the secondary mortgage market, reducing their risk and freeing up capital to make more loans. This liquidity in the mortgage market helps ensure a steady flow of funds for homebuyers.

5. Stability in the Mortgage Market:

The conforming loan limits are adjusted annually based on changes in the average home price, which helps maintain stability in the mortgage market. This adjustment reflects the evolving real estate landscape and ensures that buyers have access to financing that aligns with current market conditions.

Overall, the 2024 conforming loan limits contribute to a more accessible and stable mortgage market, providing buyers with opportunities for favorable terms and facilitating homeownership. Keep in mind that specific benefits may vary based on individual financial situations, regional home prices, and other factors. Buyers should consult with mortgage professionals to understand how these limits impact their specific circumstances.