You are limited in the amount of a mortgage loan you may qualify for as a borrower based on factors such as your income, debt-to-income ratio, and credit score. But did you know that the Federal Housing Finance Agency (FHFA) also sets a lending limit for conventional loans? Home loans that conform to these limits are called conforming loans. Every year the FHFA announces new loan limits and, for 2023, the loan limit is increasing.
Key takeaways
- The FHFA sets the conforming loan limit every year in November for the following year, meaning that mortgage loans under this dollar cap are considered conforming loans.
- This loan limit is considered the maximum loan amount that Fannie Mae and Freddie Mac are willing to buy or guarantee.
- The conforming loan limit for a single-family, one-unit property in 2023 is $726,200.
- Conforming loans allow borrowers to take advantage of lower interest rates than with a non-conforming loan or jumbo mortgage.
What is the conforming loan limit?
The conforming loan limit is a dollar amount cap placed on mortgages by the Federal Housing Finance Agency (FHFA). It is the maximum amount that Fannie Mae and Freddie Mac will purchase or guarantee. Loans that meet this cap are considered conforming loans. Each year in November, the FHFA announces the following year’s conforming loan limit which is based on changes in the average home prices throughout the country. For 2023, the baseline loan amount for a single-unit property is $726,200.
How does it work?
Conforming loan limits are tied directly to the House Price Index (HPI) report and the area’s median home value. As home prices increase, so does the conforming loan limit. But what about areas where the housing prices are higher than the national average? Conforming loan limits are based on county, and, in high-cost areas, the conforming loan limit is increased. In addition, borrowers in Alaska, Hawaii, Guam, and the U.S. Virgin Islands have different conforming loan limits because they are automatically designated high-cost areas. The maximum ceiling on limits in these areas is 150% of the baseline loan amount, which for 2023 will be $1,089,300 for a single-unit property.
What do the 2023 conforming loan limits mean for you?
Because conforming loans can be purchased or guaranteed by Fannie Mae and Freddie Mac, they often come with much lower interest rates than non-conforming, or jumbo, loans. If the value of the home you are purchasing exceeds the conforming loan limits, you can increase your down payment so that your mortgage amount still falls within the limit in order to take advantage of the lower interest rates.
Conforming loan limit for 2023
Conforming loan limits increased for 2023 and these new limits cover any loans delivered in 2023, even those originating at the end of 2022.
Maximum baseline loan amount for 2023
| Property units | Contiguous States, District of Columbia, and Puerto Rico | Alaska, Hawaii, Guam, and the U.S. Virgin Islands |
|---|---|---|
| 1 | $726,200 | $1,089,300 |
| 2 | $929,850 | $1,394,775 |
| 3 | $1,123,900 | $1,685,850 |
| 4 | $1,396,800 | $2,095,200 |
Maximum conforming loan limits for high-cost areas for 2023
| Property units | Contiguous States, District of Columbia, and Puerto Rico |
|---|---|
| 1 | $1,089,300 |
| 2 | $1,394,775 |
| 3 | $1,685,850 |
| 4 | $2,095,200 |
Can you borrow more than the conforming loan limit?
Borrowers are not limited to conforming loans and, if your property exceeds the maximum conforming loan limit, you can consider a non-conforming, or jumbo, loan. Keep in mind that jumbo loans are considered riskier by the mortgage lender and often come with higher qualifications, as well as increased interest rates.
What to do if you don’t qualify for a conforming loan
If the property you are looking to purchase exceeds the conforming loan limit, there are some things you can do. You can apply for a nonconforming jumbo loan that has no dollar cap, but these mortgages are likely to have higher interest rates and often require at least 20% down. If a jumbo loan is not an option, providing a larger down payment may allow you to drop your mortgage amount below the conforming limits and still qualify for the benefits a conforming loan provides.
If you are unable to qualify for a conforming mortgage despite having a conforming loan amount, you may qualify for government loans, such as an FHA, VA, or USDA loan. Qualifications for these loan types of often less restrictive and, while not considered conforming or conventional loans, these loan types also have loan cap requirements.
Know your limits when you begin your search
When searching for your ideal home, it is beneficial to identify your area’s conforming loan limit in order to have a clear picture of the dollar amount that will keep you within the limits of a conforming loan in order to take advantage of its benefits. Local realtors and loan officers in the area should be able to provide you with the local area limits which can be different if you are searching for a home in a high-cost area.
You don’t have to navigate the mortgage process alone
At Hero Home Programs, we understand how confusing the home-buying process can be, especially for first-time homebuyers. Our team is here to help answer any questions and help you navigate your way through the home-buying process, including finding the best loan options available to you. To learn more, schedule a consultation with us today.
