Conforming Loan Limit Explained

The conforming loan limit is the maximum loan size that Fannie Mae and Freddie Mac will purchase from lenders. Each year, the Federal Housing Finance Agency (FHFA) adjusts this cap based on median home price changes. Loans at or below the limit carry lower interest rates and more lenient underwriting; loans above it—called jumbo loans—carry higher rates and stricter qualification rules.

Why conforming limits exist

In the 1930s, the federal government created the secondary market for mortgages—a system where lenders originate loans, then sell them to government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. This separation lets lenders free up capital to make new loans and pass risk to entities with federal backing.

A conforming loan is one that meets Fannie Mae and Freddie Mac’s underwriting standards and fits within their size cap. Because these loans carry implicit federal backing, investors will buy them at lower yields, and lenders can offer borrowers lower interest rates. A 30-year fixed conforming mortgage might be priced 50–75 basis points lower than a jumbo loan of the same term and credit rating.

The conforming limit is the ceiling of this two-tier system. Loans above it stay with the originating lender, who must hold the risk or sell to private investors at higher prices—meaning higher rates for borrowers.

How the FHFA sets the annual limit

Each October, the FHFA announces the conforming loan limit for the following year. The method is mechanical: it takes the median home price from the previous 12 months, compares it to the prior year’s median, and adjusts the dollar limit by the same percentage.

For example, if median home prices rose 5% from one year to the next, the loan limit rises 5%. If prices fell 2%, the limit falls 2%. There is a floor: the limit never drops below the prior year’s level, a safeguard built into law. This ratchet effect means limits climb steadily in normal markets and stall (rather than fall) in downturns.

The baseline conforming limit applies to most counties. In 2024, this was roughly $766,200 for a single-family home. However, the FHFA also calculates county-level adjustments based on local median home prices.

High-cost area adjustments

The law allows conforming limits to be higher in expensive housing markets. If a county’s median home price exceeds the national median by a certain threshold, the FHFA calculates an adjusted limit for that county—sometimes called the “high-cost” or “state maximum” limit.

The formula caps this adjusted limit at 150% of the national conforming limit. So if the national limit is $766,000, the maximum any county can reach is roughly $1.15 million, even if local median prices are much higher.

This creates a mosaic of limits across the country. San Francisco, New York, Los Angeles, and Boston have conforming limits near $1.1–$1.35 million. Rural Kansas might have a limit near $766,000. A $1.2 million loan in San Francisco is conforming; the same loan in Kansas is a jumbo.

The jumbo loan boundary

Any loan exceeding the conforming limit for its county is a “jumbo” loan. Jumbo loans typically carry:

• Higher interest rates (50–200 basis points above conforming rates, depending on market conditions and the borrower’s credit score).
• Larger down payments (often 20–30% down, versus 3–5% for conforming with mortgage insurance).
• Stricter income documentation (full tax returns, bank statements, employment verification).
• Higher credit scores (often 700 or higher; conforming loans may accept 620).
• Larger cash reserves required (proof of 6–12 months of mortgage payments in liquid assets).
• Asset and income verification for self-employed borrowers.

The jumbo market is smaller and more cyclical. During credit crunches, jumbo lending shuts down or becomes prohibitively expensive. In strong markets, jumbo rates converge closer to conforming rates.

Why limits matter for borrowers

For homebuyers shopping in expensive markets, the conforming limit affects whether they qualify and what rate they pay. A $900,000 borrower in a county with a $766,000 limit must take a jumbo loan, potentially adding $100–$300 per month to payments compared to a conforming loan.

Some borrowers respond by putting down 20% or more to stay under the conforming limit. Others split a purchase into two loans: a conforming “first” mortgage and a smaller “piggyback” second mortgage or home equity loan, avoiding jumbo pricing. This comes with two sets of closing costs and monthly payments but can save money if rate savings exceed the extra fees.

Lenders also use conforming limits to manage risk. A portfolio lender—one that holds mortgages rather than selling them—may have a lower internal limit to keep concentration risk manageable. A bank with $500 million in assets might cap jumbo lending to $50–75 million, forcing borrowers above that threshold elsewhere.

The relationship to the secondary market

Fannie Mae and Freddie Mac, collectively called the GSEs, dominate the secondary market. Their ability to buy conforming loans at scale—bundling them into mortgage-backed securities and selling them to investors—anchors the entire mortgage system. Without this secondary market, lenders would hold every loan and couldn’t afford to make new ones.

The conforming limit is thus a proxy for the GSE-backed market’s reach. Loans above the limit exist in a less liquid, private market, with fewer buyers and higher costs. Over-conforming limits are a contentious topic in housing policy: raising them would expand GSE support to more borrowers, lowering costs in expensive markets but increasing taxpayer risk. Leaving them flat concentrates federal support on cheaper properties.

Regional variation and strategic implications

A $1 million home in Boston is conforming; the same home in Phoenix is jumbo. This geographic mismatch affects:

• Refinancing eligibility. A borrower with a $900,000 jumbo loan may struggle to refinance into a conforming loan if home prices fall, locking them into a narrow set of lenders.
• Loan portability. Conforming loans are easier to transfer or modify because more lenders buy them.
• Resale dynamics. In expensive markets, the jumbo boundary can depress prices slightly just below the limit, as buyers compete for the conforming advantage.

A borrower in a high-cost county with a $1.1 million conforming limit can refinance or sell to a wide pool of buyers. The same borrower in a county with a $766,000 limit faces friction above that threshold.

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