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You may hear the term loan limit come up during the homebuying process. But what does that actually mean for you?
Simply put, loan limits determine the maximum amount you can borrow for a conforming loan, the most common type of mortgage backed by Fannie Mae and Freddie Mac.
The good news? Each year, these limits often increase to keep pace with rising home prices, which can make it easier for you to qualify for the home that you truly want.
Loan Limits, Explained
Loan limits set the maximum loan size a lender can offer for a conforming loan. These loans follow guidelines set by Fannie Mae and Freddie Mac, ensuring they’re eligible to be sold on the secondary market.
There are different loan limit types depending on the program:
- Conventional (Conforming) – Backed by Fannie Mae and Freddie Mac
- FHA – Set by the Federal Housing Administration
- VA – Based on eligibility and entitlement for qualified veterans
Once you exceed a conforming limit, you enter jumbo loan territory, typically requiring a larger down payment and stricter qualification standards. The baseline conforming loan limit is periodically adjusted and may vary by county.
Why Loan Limits Keep Rising
Loan limits don’t change at random; they’re adjusted each year by the Federal Housing Finance Agency (FHFA) to reflect nationwide home price trends. When average home prices increase, the FHFA raises conforming loan limits accordingly.
For instance, if home prices rise 5% year over year, the conforming loan limit usually increases by about the same amount. This system helps keep mortgages accessible and aligned with real-world market conditions, so you can still afford homes even as prices rise!
Why This Is Good News for Buyers
Rising loan limits aren’t just a technical update; they’re a real win for today’s homebuyers. As prices continue to climb in many markets, higher limits help bridge the gap, giving buyers more room to compete without jumping into jumbo loan territory. Here’s what the increase means for you:
- More buying power: You can finance a higher-priced home without needing a jumbo loan.
- Lower down payments: Conforming loans often require just 3–5% down, compared to higher requirements for jumbo loans.
- Better rates and flexibility: Conforming loans typically offer lower interest rates and simpler underwriting.
For example, if last year’s limit capped you at $766,550 and this year it’s over $800,000, you might suddenly qualify for that next-level home, all while staying comfortably within conforming loan guidelines.
Impact of Local Loan Limits
Loan limits vary by county to reflect differences in local housing costs. In areas where home prices are higher, the limits are adjusted upward to make financing more accessible.
Many lenders begin using projected conforming loan limits before the official annual announcement from the Federal Housing Finance Agency (FHFA). The baseline limit applies to one-unit homes in most U.S. counties, while limits in designated high-cost areas, such as popular metro areas, are set higher to reflect local market conditions. This expanded eligibility helps you benefit from competitive rates, lower down payment requirements, and simpler qualification standards, all within conforming loan guidelines.
What Homebuyers Should Do Next
If you’re planning to buy a home this year, there are a few smart steps you can take to make the most of these new loan limit updates:
- Check your local loan limits – Each county has its own maximum loan amount, so it’s worth taking a look at what applies to your area. Even a small increase could make a big difference in your purchasing power.
- Talk to a loan officer – A quick conversation can help you understand how the new limits affect your financing options. Your loan officer can show you updated scenarios based on current rates, loan programs, and your specific goals.
- Revisit your pre-approval – If you were pre-approved before these changes took effect, it’s a good idea to refresh your application. The new limits might increase what you qualify for or give you more flexibility in your home search.
Pro Tip: If you were just shy of your dream home’s price point last year, this year’s higher loan limits might be exactly what puts it within reach!
Your Next Step Toward Homeownership
Rising loan limits are a positive sign for the housing market and for buyers alike. They reflect continued growth and help make homeownership more accessible by expanding what you can qualify for without stepping into jumbo loan territory.
If you’re wondering how these changes might affect your buying power, our team is here to help. Connect with one of our experienced loan officers to explore your options and see how the new limits could bring you one step closer to your next home!
