CONVENTIONAL
Loan Limits

Conventional mortgage loan limits refer to the maximum amount a borrower can finance through a conventional mortgage, which is a loan not backed by a government agency like the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, these loans adhere to the guidelines set by two key government-sponsored enterprises (GSEs): Fannie Mae and Freddie Mac.

Conventional loan limits are important because they dictate whether a mortgage is classified as a conforming loan (one that meets the limits) or a non-conforming loan (one that exceeds them). Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, which helps maintain liquidity in the housing market. Loans that exceed the conforming limits are known as jumbo loans, and they typically come with stricter requirements and higher interest rates due to the increased risk for lenders.

Loan Limits Vary by Location
The Federal Housing Finance Agency (FHFA) sets the loan limits for conventional mortgages. While there is a baseline limit that applies across most of the United States, some high-cost areas have higher limits due to the elevated property values in those regions. These areas are typically located in cities with high real estate demand, such as San Francisco, New York, and parts of California.

– In most of the U.S., the baseline conventional loan limit is set annually by the FHFA. For example, in 2025, the baseline limit for a one-unit property is $806,500.

– In high-cost areas, where 115% of the local median home value exceeds the baseline limit, the loan limit may be higher. In these areas, the limit can go up to 150% of the baseline limit, but it is capped. For 2025, the limit in high-cost areas can reach as high as $1,209,750 for one-unit properties.  

Influence of Housing Market Trends
Each year, the FHFA adjusts loan limits to reflect changes in average home prices across the country. If housing prices rise significantly, loan limits may be increased to account for that growth. Conversely, in years where prices decrease, limits may remain unchanged or potentially drop, though that scenario has been rare in recent years due to the general trend of rising property values.

Importance for Borrowers
– Since conforming loans are eligible for purchase by Fannie Mae and Freddie Mac, they tend to carry lower interest rates compared to jumbo loans, making them more affordable over the life of the loan.

– Conforming loans often have more flexible credit score requirements, lower down payment options, and more lenient debt-to-income ratios, making it easier for borrowers to qualify.

– Lenders face lower risk with conforming loans since they can sell them to Fannie Mae and Freddie Mac. This encourages them to offer competitive terms and make financing more accessible to homebuyers.

Jumbo Loans and Their Implications
If a borrower needs a loan that exceeds the conforming loan limits for their area, they will need to apply for a jumbo loan. These loans are considered riskier for lenders because they cannot be sold to Fannie Mae or Freddie Mac, meaning the lender must hold the loan in its portfolio. As a result, jumbo loans usually come with stricter requirements.

– Lenders often require a credit score of 700 or above for jumbo loan approval.

– While conventional conforming loans may offer down payments as low as 3%, jumbo loans usually require 15-20% down.

– Borrowers typically need to demonstrate a stronger ability to manage debt with jumbo loans having lower debt-to-income ratios than conforming loans.

Impact of Conventional Loan Limits on First-Time Homebuyers
For many first-time homebuyers, staying within the conventional loan limit is crucial for obtaining a mortgage with affordable terms. Loan programs offered by Fannie Mae and Freddie Mac, such as the HomeReady® or HomePossible® programs, are designed to help buyers with low to moderate incomes purchase homes with down payments as low as 3%. These programs are only available for conforming loans, meaning buyers must stay within the established loan limits to take advantage of them.

– Loan limits also play a role in promoting affordable housing options. By setting maximum loan amounts, lenders are encouraged to provide loans within a reasonable range, which can help ensure that housing remains affordable and accessible to a wider range of individuals and families.

– Lenders and government agencies consider loan limits as a risk management tool. By setting a maximum loan amount, they can mitigate the potential risk of default or financial instability in case borrowers are unable to repay the loans. Loan limits are designed to strike a balance between enabling homeownership opportunities and minimizing the risk to lenders and the broader economy.

Conventional loans will be determined to be either conforming or high balance.
–  The current conforming loan limit for all counties throughout the country is $806,500 for a one unit property.

–  For homes that are located in what has been determined to be a high balance region, the loan limits will vary depending upon the county.

– In regions where high balance limits don’t apply, any loan amount over $806,500 will be considered a Jumbo Loan. In a county which is considered to be a high balance region, a Jumbo Loan will then be any loan size above the high balance limit.

It is always best to be acquainted with the County Limit of the area in which you are interested in purchasing your new home.

Conventional mortgage loan limits play a vital role in the U.S. housing market by defining the maximum amount that can be borrowed under a conforming loan. These limits, set annually by the FHFA, vary based on location and are adjusted to keep pace with changes in home prices. For most homebuyers, staying within these limits can offer significant advantages, including lower interest rates, easier qualification standards, and access to specific homebuyer programs. Conversely, exceeding these limits and venturing into jumbo loan territory requires more stringent financial qualifications, making it important for borrowers to carefully consider their financing options in relation to local loan limits.