Conforming Limits Will Likely Jump By 2.36% Woohoo? Or, Uh Oh?

Rocket Mortgage recently announced its estimates for the new conforming loan limits for 2026: $825,550 for low-cost areas, and $1,238,500 for high-cost areas.

There are so many interesting takeaways!

Conforming loans, once again, are loans that “conform” to Fannie Mae and Freddie Mac guidelines.

1. Rocket announces new loan limits (and accepts those loans) every year at least a month before FHFA (the regulatory agency that regulates Fannie and Freddie) officially announces the new limits (slated for Nov 25th).
   
2. Rocket is usually accurate because they know the formula that FHFA uses; it is based on housing appreciation data across the country.
3. What’s the big deal about higher conforming loan limits? It means borrowers can buy homes that are much more expensive with subsidized (lower-rate) Fannie/Freddie financing. Jumbo financing isn’t as flexible as Fannie/Freddie financing, and high-balance/high-cost loans have higher rates than low-balance loans.
4. Why don’t more mortgage banks follow Rocket’s lead and accept higher conforming limits early? Short answer: risk and cost.

   Several large mortgage banks (like UWM and CrossCountry) do allow for larger loan limits early, like Rocket does. But this year they were more conservative with their estimated increase – illuminating a huge risk. If a mortgage bank over-estimates the loan limit increase, they will end up with loans they cannot sell without taking a steep discount – and that can be extremely costly. In addition, smaller mortgage banks can’t afford to hold mortgages on their credit lines for several months – until the loan limits are officially accepted. There are also substantial systems and software costs.

5. The housing data that goes into conforming loan limit increases proves the “crash bros” wrong once again. They were all screaming last year that we’d see a huge correction this year, but the FHFA housing data clearly shows they were not only wrong, but home prices went up on average across the country.
6. JVM is in both the mortgage broker and the mortgage banking channels, so we can submit loans to Rocket if necessary to take advantage of the new limits (and we occasionally do).
   
7. FHA usually follows suit with the same limits that Fannie and Freddie have, BUT the FHA limits in individual counties are often lower (sometimes much lower) than the Fannie/Freddie/conforming limits.
   
8. Loan limits seem to never go down, even if housing prices correct. Brief history and chart below. Low balance limits were under $240,000 in the 1990s, and low balance limits were frozen at $417,000 from 2008 – 2016.
9. I rarely closed “conforming loans” prior to 2008. Prior to 2008, alternative loan products almost always had better terms – at least in higher loan amount areas.
10. 5% down for $1.3mm purchase – with middling credit and high debt ratios? With the new high balance limits, a relatively weak homebuyer can purchase a $1.3 million home with only 5% down. No private sector commercial banks (not backed by the government) would offer that financing. I am pretty sure that is not what the people who originally established Fannie Mae, Freddie Mac, and FHA had in mind.
11. Subsidies push home prices higher – every time. This is something I repeat ad nauseum. But, whenever the government (via HUD/FHA and Fannie/Freddie) offers to subsidize higher loan amounts, it just results in higher home prices. This creates more business for all of us now, but it just makes housing that much more costly for our kids.
12. Government involvement is bad. Whenever the government has this much involvement in an industry, it results in inefficiencies, subsidies, bailouts, undue political influence, and unexpected consequences. The 2008 collapse was almost entirely the result of bad government policy, even though we are told it was “greedy bankers” over and over (it was government policy that enable “greedy bankers” to originate and sell those horrible loans). In addition, loans are far too hard and expensive to close now because of excess regulations.