Purchasing a home in California is a significant financial investment, and understanding the conforming loan limits in the state is crucial for homebuyers. California, with its high real estate prices, presents unique challenges for borrowers. The conforming loan limits set by the Federal Housing Finance Agency (FHFA) play a key role in determining the types of loans available to borrowers and the rates they will pay.

In this guide, we'll explore what conforming loan limits are, how they impact borrowers in California, the factors influencing loan limits, and the options available if you need to borrow more than the conforming loan limit allows.

What Are Conforming Loan Limits?

A conforming loan is a mortgage loan that meets the standards set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These government-sponsored entities (GSEs) purchase loans from lenders, which allows lenders to offer more mortgages to borrowers. For a loan to be purchased by Fannie Mae or Freddie Mac, it must meet certain guidelines, including a maximum loan amount, which is known as the conforming loan limit.

Each year, the FHFA sets the conforming loan limits for mortgages that Fannie Mae and Freddie Mac can buy. These limits are based on the median home prices in each area. In most parts of the country, the conforming loan limit is the same, but in high-cost areas like California, the limits are higher due to the elevated home prices.

Why Do Conforming Loan Limits Matter?

Conforming loan limits are important because they influence the interest rates, down payment requirements, and availability of loans for borrowers. Mortgages that stay within the conforming loan limit are typically easier to qualify for, come with lower interest rates, and may require a smaller down payment compared to non-conforming loans (often called jumbo loans).

If the loan amount exceeds the conforming limit, the mortgage is classified as a jumbo loan, which often comes with stricter qualification standards, higher interest rates, and larger down payment requirements. Understanding the conforming loan limits helps buyers gauge their borrowing capacity and select the best loan option.

Conforming Loan Limits in California for 2024

The conforming loan limits in California vary by county, reflecting the significant variation in home prices across the state. As of 2024, the standard conforming loan limit for most of the U.S. is $766,550, but in high-cost areas, including many parts of California, the limit is higher.

Here’s a breakdown of the conforming loan limits in California’s major regions for 2024:

• Standard Loan Limit: $766,550 (applies to most counties in the U.S.)

• High-Cost Area Limit: $1,150,000 (for high-cost areas like Los Angeles, San Francisco, and Orange County)

High-Cost Counties in California

California is home to several high-cost areas where home prices far exceed the national average. As a result, many counties in California have conforming loan limits higher than the standard limit. Some of the high-cost counties in California where the 2024 loan limit exceeds $1 million include:

• Los Angeles County: $1,150,000

• San Francisco County: $1,150,000

• Orange County: $1,150,000

• Santa Clara County: $1,150,000

• Marin County: $1,150,000

• San Mateo County: $1,150,000

For these counties, the higher loan limits help buyers afford homes in areas where property values are significantly above the national average.

Standard Loan Limit Counties in California

Not all counties in California qualify for the higher conforming loan limits. Counties with lower average home prices adhere to the standard loan limit of $766,550. These counties include:

• Fresno County

• Kern County

• San Joaquin County

• Shasta County

• Tulare County

In these areas, the conforming loan limit reflects more affordable home prices compared to the state’s coastal and metropolitan regions.

How Conforming Loan Limits Are Determined

Each year, the FHFA sets the conforming loan limits based on changes in the national average home prices. These limits are adjusted annually to account for fluctuations in the housing market. In high-cost areas like many parts of California, the conforming loan limits are higher to accommodate the local real estate market conditions.

1. National Average Home Prices

The primary factor influencing conforming loan limits is the national average home price. If home prices rise significantly, the FHFA may increase the loan limits to ensure borrowers can still access conforming loans. Conversely, if home prices drop, the FHFA may maintain or lower the limits.

2. High-Cost Area Adjustments

In high-cost areas where homes are significantly more expensive than the national average, the FHFA raises the conforming loan limits to make it easier for buyers to secure financing without resorting to jumbo loans. In these areas, the loan limit can be as much as 150% of the baseline limit.

3. Local Housing Market Trends

In addition to national trends, the FHFA considers local market conditions when setting loan limits. California’s housing market is one of the most dynamic in the country, with some regions experiencing rapid price increases, especially in places like the San Francisco Bay Area and Southern California. As home prices fluctuate, loan limits are adjusted to keep pace with local market conditions.

The Benefits of Conforming Loans

Conforming loans offer several advantages for homebuyers, particularly those purchasing homes in high-cost areas of California. Here are some key benefits:

1. Lower Interest Rates

Conforming loans generally come with lower interest rates compared to jumbo loans. This is because Fannie Mae and Freddie Mac guarantee these loans, making them less risky for lenders. Lower interest rates can translate into significant savings over the life of the mortgage.

2. Easier Qualification Requirements

Because conforming loans are backed by Fannie Mae and Freddie Mac, they typically have more lenient qualification requirements compared to jumbo loans. Borrowers may be able to qualify with lower credit scores and smaller down payments, which can be especially helpful for first-time homebuyers.

3. Lower Down Payment Requirements

Many conforming loans offer low down payment options. For example, borrowers may be able to put down as little as 3% to 5% on a conforming loan, while jumbo loans often require a down payment of 20% or more. This makes homeownership more accessible, especially in high-cost areas where saving for a large down payment can be a challenge.

4. Mortgage Insurance Options

Conforming loans allow borrowers to cancel private mortgage insurance (PMI) once they reach 20% equity in the home. In contrast, jumbo loans may not offer the same flexibility regarding mortgage insurance.

What If You Need to Borrow More Than the Conforming Loan Limit?

If you're looking to buy a home in California and the purchase price exceeds the conforming loan limit, you may need to consider a jumbo loan. Jumbo loans are designed for borrowers who need to finance more than the conforming loan limits allow.

Jumbo Loan Overview

• Higher Loan Amounts: Jumbo loans allow borrowers to finance homes that exceed the conforming loan limits. These loans are common in California’s high-cost markets, where home prices regularly surpass the conforming limit.

• Stricter Qualification Standards: Because jumbo loans are not backed by Fannie Mae or Freddie Mac, lenders typically require higher credit scores, more significant down payments, and lower debt-to-income ratios to qualify.

• Higher Interest Rates: Jumbo loans often come with higher interest rates compared to conforming loans. This is because they carry more risk for lenders, as they are not guaranteed by the government-sponsored entities.

Alternatives to Jumbo Loans

If a jumbo loan isn’t ideal for your situation, there are a few alternatives to consider, including:

• Piggyback Loans: A piggyback loan allows borrowers to take out two loans simultaneously—one that meets the conforming loan limit and a second loan for the remaining amount. This strategy can help you avoid the higher rates and down payments of a jumbo loan.

• Larger Down Payment: If possible, increasing your down payment to reduce the loan amount to within the conforming limit may allow you to qualify for a conforming loan and avoid a jumbo loan altogether.

Conclusion

Understanding the conforming loan limits in California is essential for homebuyers, particularly in the state’s high-cost markets. These limits influence the types of loans available, the interest rates you’ll pay, and how much you’ll need to save for a down payment.

With California’s diverse housing market, loan limits vary by county, with higher limits in more expensive areas like Los Angeles, San Francisco, and Orange County. For those who need to borrow more than the conforming loan limit, jumbo loans are an option, though they come with stricter requirements and higher interest rates.

By researching loan limits in your specific county, preparing your financial profile, and exploring different loan options, you can make informed decisions and secure the financing you need to purchase your dream home in California.