I wanted to write a 2024 post today with news that 2024Conventional and FHA mortgage loan limits will be increasing over the 2023 limits in the United States. The loan limits are also known as Conforming loan limits. Any loan size above the limits is known as a Jumbo loan. Meaning government agencies Fannie Mae and Freddie Mac may only purchase loans that “conform” to the loan limits, called Conventional loans.
The loan limits adjust higher according to number of units in a property. A single family home or condo or townhouse is known as a one unit. A duplex would be two units, a triplex three units and a quadplex four units. In Chicago, where I’m from, we refer to these often as 2 flats, 3 flats or 4 flats.
Below are the 2024 Conventional loan limits for most counties in the U.S.-
1 Unit $766,550
2 Unit $981,500
3 Unit $1,186,350
4 Unit $1,474,400
If you have read this Blog in the past, you know I write about renovation loans and how they function to add renovation funds into a purchase or refinance mortgage, with approval based on After Renovated Value (ARV) and future rents. With the 2024 higher Conventional loans limits, a door opens to perhaps purchase and rehab a higher cost property or spend more on the renovation.
In November 2023 Fannie Mae announced new lower Conventional down payment requirements for 2, 3 and 4 unit properties. Now the down payment can be as little as 5% on an owner occupied 2, 3 or 4 unit property. This is great news in that the prior minimum down payments were 15% for 2 unit and 25% for 3 or 4 unit with a Fannie Mae guaranteed loan. This includes Fannie Mae’s renovation loan called HomeStyle.
Note that Fannie Mae 3 and 4 unit mortgages do not have any rental income Self Sufficiency test to pass as an FHA 3 or 4 unit mortgage does. This is another big win for borrowers using Fannie Mae HomeStyle with 5% down payments on 3 and 4 unit properties.
As an example, with HomeStyle renovation, a 3 unit purchase in Chicago might be $700,000 in some areas. To renovate both units and the basement may cost in excess of $250,000. That’s a total transaction of $950,000. The new minimum Fannie Mae Conventional down payment is 5% as an owner occupied 3 unit or in this example, $47,500. That leaves a 3 unit mortgage of $902,500. That is $283,850 under the 2024 Conventional loan limit for a 3 unit of $1,186,350. So, the higher 2024 Conventional 3 unit loan limit of $1,186,350 is more than enough to purchase and renovate.
FHA calculates forward mortgage limits based on the median house prices in accordance with the National Housing Act. These limits are set at or between the low-cost area and high-cost area limits based on the median house prices for the area. As a result, FHA loan limits are not the same as Conventional loan limits in most areas, they are generally lower. But there are higher cost counties in a number of states, much like Conventional loans, that will have higher FHA loan limits than the minimums as below that apply to most counties in the U.S.
Below are the 2024 FHA loan limits for most counties in the U.S.
1 Unit $498,257
2 Unit $637,950
3 Unit $771,125
4 Unit $958,350
As an example, if purchasing a 4 unit in Chicago for $500,000 and adding $480,000 for a full gut renovation, that total transaction cost is $980,000. FHA 203k renovation loans on a 4 unit require a minimum down payment of 3.50% or $34,300 in this example. That leaves a mortgage of $945.700 which is just $12,650 under the 2024 FHA 4 unit loan limit of $958,350.
But the property must pass the FHA Self Sufficiency test. That test is met by using 75% of future rent from all units, including an owner’s unit. That number must equal the total monthly payment to pass Self Sufficiency Test. If it does not the loan cannot be approved regardless of borrower’s income.
To answer any questions you may have on the history and mechanics of how loan limits are updated each year I provide the information below.
The Federal Housing Finance Agency (FHFA) under the Housing and Economic Recovery Act of 2008 (HERA) uses a formula to calculate the next years Conventional loan limits based on the current year’s third quarter FHFA House Price Index (HPI) for the United States. This calculation is done at the end of each November for mortgage loans that will close beginning the next January 1.
You might be curious if the loan limits can decrease from one year to the next. The answer is no per the HERA legislation rules. If house prices decrease the loan limits will stay the same as the prior year until house price declines have been “made up” and the current index level exceeds the prior FHFA HPI level before the decline started. This occurred when the one unit loan limit was $417,000 in 2006 and stayed there until Jan. 1, 2017 when the HPI showed an increase for third quarter 2016, allowing higher 2017 loan limits. It has continued to increase ever since to this point.
There are several counties that have especially higher loan limits in a number of states due to the formula FHFA uses based on typically higher costs of housing seen in those counties. These counties are usually found in New York, California, Virginia, Colorado and several other states. By definition per HERA, Hawaii, Alaska, Guam, and the U.S. Virgin Islands have higher loan limits as well.
Loan approval and terms are dependent upon borrower’s credit, documented ability to repay, acceptability of collateral property, and underwriting criteria. Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. All loans subject to credit approval. Rates and fees subject to change. Not all borrowers will qualify.
Perry Farella NMLS ID755943
FCM NMLS ID 629700
Perry Farella 773 793 8803
Perry.Farella@fcmhomeloans.com PerryFarella.com
