Rocket Mortgage says it’s raising its limit on conforming loans backed by Fannie Mae and Freddie Mac. This increase comes ahead of the Federal Housing Finance Agency’s (FHFA) late November announcement for 2024’s loan limits.
This move allows prospective home buyers in high-priced areas to qualify for larger loans that require a lower credit score and a slightly higher debt-to-income (DTI) ratio than most other loan programs. If you are in the market for a conventional loan, Rocket Mortgage’s early limit increase could put you ahead of the game in a competitive housing market featuring a crunched inventory.
The FHFA is expected to raise the conventional loan limit by 3.28% to $750,000 in 2024. This limit only applies to one-unit properties, such as single-family homes, in the continental U.S. The FHFA loan limit for Hawaii and Alaska is expected to reach $1,123,000. Rocket Mortgage is implementing these new limits early to the government-backed loans it offers, which means buyers won’t have to wait until next year to take advantage of the increase.
“We’ve done this for a few years running and part of it is about trying to provide a new benefit for our borrowers,” says Eileen Tu, Rocket’s vice president of product development. “From a loan limit standpoint, this is a great option.”
How Do Loan Limit Changes Work?
Loan limit changes affect conventional loans, FHA loans and VA loans. Each loan type has unique details that you should consider before making a borrowing decision.
Conventional Limits
Conventional loans, also known as conforming loans, adhere to the national loan limits established by the FHFA and enforced by Fannie Mae and Freddie Mac. These agencies don’t issue the loans—they insure them, which eliminates some lender risk. As a result, conventional loans have historically been cheaper than jumbo loans, which are financed directly by the lender.
VA Loan Limits
As of 2020, VA loans don’t typically have limits for loans over $144,000, provided you have a full entitlement. However, if you have an impacted entitlement, which occurs after a foreclosure or loan default, you may be subjected to loan limits similar to a conforming loan. VA entitlement refers to the portion of your mortgage that the VA is obligated to cover if you can’t pay your mortgage.
Rocket Mortgage offers a VA jumbo loan for $2 million or more, which is common for high-income areas such as New York City.
FHA Loan Limits
The FHA sets annual loan limits at the beginning of each calendar year. Your loan limit depends on how many units your property has. For example, the limit for a one-bedroom unit ranges from $472,030 to $1,089,030 for Alaska, Hawaii or other high-cost areas.
Conventional vs. Jumbo Loans: Which Is Best for You?
If you want to buy a property priced above the conventional loan limits, a jumbo loan may be your best option. Jumbo loans, however, do have stricter underwriting requirements than conventional loans. Jumbo loans require a DTI ratio below 40% to 43%.
You may also need a credit score of at least 700 and a loan-to-value ratio below 80%. Conventional loans, on the other hand, typically aren’t as strict with their requirements, and some lenders even offer appraisal waivers, which allow buyers to skip the appraisal process when purchasing a new home.
Typically, jumbo loan interest rates are higher than conventional loans. However, the opposite is true today—the average 30-year jumbo loan interest rate is 8.00%, compared to an average 30-year conventional loan interest rate of 8.07%.
Rocket Mortgage offers a Jumbo Smart loan program, which features loan limits of up to $3 million and doesn’t require as large of a down payment when compared to other jumbo loans.
Ultimately, the choice between a jumbo loan and a conventional loan depends on your financial capability and loan needs.
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