Are you looking to buy a new home in 2025? With rising home prices across the country, you may be wondering how much money you can borrow with a conventional mortgage. Luckily, conventional loan limits are also increasing for 2025 to keep pace with the market.
In this comprehensive guide, we’ll dive into all the details around conventional loan limits for 2025. You’ll learn the new baseline limits, how limits differ by location, eligibility requirements, and tips for getting the best mortgage rate possible within the new limits. Let’s get started!
What Are the New Baseline Conventional Loan Limits for 2025?
The Federal Housing Finance Agency (FHFA) sets the baseline loan limits each year for mortgages backed by Fannie Mae and Freddie Mac. For 2025, the baseline conforming loan limit for a one-unit home is increasing to $806,500.
This represents a nearly 7% jump from the 2024 limit of $754,650. It’s also the highest baseline limit ever set, reflecting the strong appreciation in home values nationwide.
Here are the new baseline conventional loan limits for all property types in 2025:
- 1-unit homes: $806,500
- 2-unit homes: $1,032,650
- 3-unit homes: $1,248,150
- 4-unit homes: $1,551,250
These baseline limits apply to most areas of the country. However, in expensive metro areas, the ceilings are even higher.
How Do Loan Limits Vary for High-Cost Counties?
In select high-cost counties, mainly concentrated in coastal states like California, New York, and Massachusetts, the loan limits rise even further.
For example, the new conforming limit in 2025 for a one-unit home in San Francisco county is $1,209,750. That’s a nearly $400,000 bump over the standard baseline!
Here are the maximum conventional loan limits for 2025 in high-cost areas:
- 1-unit homes: $1,209,750
- 2-unit homes: $1,548,975
- 3-unit homes: $1,872,225
- 4-unit homes: $2,326,875
To find the specific limit for your county, use the FHFA Conforming Loan Limits lookup tool. Input your state and county to see if your area qualifies for the higher ceilings.
In total, the FHFA designates about 100 high-cost counties nationwide where buyers can borrow jumbo conforming amounts. This helps increase affordability for homebuyers in expensive markets.
Why Are the Loan Limits Increasing for 2025?
What’s behind the sizable jump in loan limits for 2025? There are a few key economic factors at play:
Home Price Appreciation
Due to high demand and low inventory, home prices have risen significantly over the past few years. The increased loan limits help offset faster rising costs so buyers have enough borrowing power.
Higher Construction Costs
Building material and labor shortages have driven up the cost of new construction. This gets passed along to buyers at the point of sale.
Inflation
General inflation is pushing prices higher across the economy. The conforming loan limits typically rise along with inflation to maintain affordability.
Interest Rates
Though rates are climbing, they remain relatively low historically. Higher loan limits allow buyers to take advantage of lower monthly payments before rates potentially rise further.
By boosting limits, the FHFA is essentially helping more homebuyers get into properties they can reasonably afford based on current economic conditions.
Am I Eligible for the New Conventional Loan Limits?
To qualify for a jumbo conforming loan up to the new baseline or high-cost county limits, you’ll need:
Good credit – A minimum credit score around 700 is recommended. The higher your score, the better mortgage rate you can likely obtain.
Stable income – Documented income from employment or other sources. Lenders may ask for pay stubs, tax returns, and bank statements as proof.
Manageable debts – Your total monthly debt payments, including the future mortgage, should not exceed 45% of your gross monthly income.
Down payment – At least 3% down payment on conventional loans. 20% down can help get the best rates.
Home value below limit – The sales price or appraised value of the home must fall under the applicable conforming loan limit.
Also note that income limits do not apply to conforming loans, only loan size. So high-income buyers can still qualify.
Conventional Loan Options Within the Limits
As you shop for mortgages, you’ll need to decide whether you want to lock in an interest rate with a fixed-rate loan or take the risk on an adjustable-rate mortgage (ARM) to get a lower initial rate. Here are factors to consider:
Fixed-Rate
- Interest rate stays the same over the full loan term.
- Predictable monthly payments.
- Makes sense if planning to stay put long-term.
- Rates somewhat higher than ARMs right now.
Adjustable-Rate (ARM)
- Start with discounted rate that adjusts up later.
- payments fluctuate with rate changes.
- Makes sense if not planning to stay beyond 5-7 years.
- Lower initial payment but future rate/payment risks.
I’d recommend starting your search by getting rate quotes for both 30-year fixed and 5/1 ARM loans within the new conforming loan amounts. See which one best fits your budget and plans.
How Can I Get the Best Mortgage Rate?
Here are some tips for scoring the lowest mortgage rate possible on a conforming loan:
Shop around – Compare interest rates and closing costs across 3-4 lenders. Leverage online mortgage tools to make this easier.
Improve your credit – Work over the next 6+ months to boost your credit score before applying. This can really pay off in a lower rate.
Save for a larger down payment – Putting down 20% instead of 3% reduces your risk profile and can earn a lower rate.
Reduce other debts – Pay down revolving balances like credit cards to help lower your DTI for approval.
Lock when rates dip – Monitor daily rate trends and lock when you see an attractive dip. Time it right to win big savings.
Buy points – Optional, but buying points to buy down your rate can make sense if staying put long enough to recoup the upfront cost.
The new higher loan limits open doors for more buyers to purchase in high-cost markets. Just be sure to take the right steps to land the most competitive financing within your new expanded borrowing power.
The Outlook for Conventional Loan Limits Beyond 2025
Will conforming loan limits continue climbing in the years ahead? Experts expect limits will rise gradually over the next few years. But the pace of growth will likely depend on where home prices and mortgage rates trend in the future.
Here are some projections from housing economists:
Home price growth will moderate but remain positive in the 5-7% range annually over the next 3 years. This supports slightly higher loan limits.
Mortgage rates may rise steadily, reducing buying power just as prices push higher. So the FHFA will need to keep lifting limits.
Builders are ramping up new home construction after years of underproduction. This added supply should take some pressure off prices and slow limit increases.
Overall inflation should cool off by 2025-2026 as the Federal Reserve nears the end of their rate hike cycle. This could limit drastic limit hikes.
The bottom line is that conventional loan limits should continue inching higher in the years ahead, just not by the larger jumps seen for 2022 through 2025. Stay tuned each year to see where the new limits are set!
Conclusion: Use the New Limits to Your Advantage
The new record-high conventional loan limits for 2025 give you more opportunity than ever to buy your dream home, even in high-cost areas. Just be sure to shop for the best deal, improve your credit, and manage debts wisely to win approval and the lowest rate.
Use the tips above to maximize your borrowing power under the expanded conforming loan limits. With smart planning, you can confidently take advantage of the new limits to buy the perfect place to call home for years to come.