Every year, the Federal Housing Finance Agency (FHFA) adjusts the conforming loan limit. This limit is the maximum amount that Freddie Mac and Fannie Mae can insure for a mortgage.
In 2020, the conforming loan limit was set at $510,400. However, in 2023 the limit will rise to $726,200. The increase is due to rising home prices across the country.
Understanding loan limits is essential for lenders and mortgage originators to help borrowers secure the financing they need at the best rate. If the loan amount exceeds the conforming loan limit, it will no longer qualify for this loan type and may require a loan with more stringent qualification requirements or higher interest rates. By fully comprehending the most recent qualifications and limits of conforming loans, originators can help their customers secure the funds they need smoothly.
What are Conforming Loan Limits?
Conforming loans are mortgages that meet the guidelines set by government-sponsored entities, like Fannie Mae and Freddie Mac. These loans typically offer borrowers access to lower interest rates or down payments, making them more affordable than non-conforming loans.
Explore our guide to Fannie Mae and Freddie Mac Loans
Conforming loan limits represent the maximium loan amounts that these entities can purchase or guarantee. These limits are an important factor in determining the size of the loan borrowers can qualify for.
How Conforming Loan Limits Work in 2023
The median home price in an area determines the conforming loan limits. The FHFA calculates the amount using its House Price Index (HPI) report, a dataset that tracks the annual changes in home prices across the country.
Conforming loan limits differ based on the number of units a property has. The 2023 conforming loan limit for a single-unit property is $726,200 - an increase from 2022's limit of $647,200. The limit jumps to $929,850 for two units, $1,123,900 for three, and $1,396,800 for four units.
In addition, the conforming loan limit can vary significantly across states and even counties.
High-Cost Area Limits
Home prices in the U.S. are inconsistent. The median home price in San Francisco is more than three times the median price of rural homes in the south or midwest.
Conforming loan limits reflect these regional differences. The FHFA designates certain counties as high-cost areas. These areas have higher median home prices than the national average and therefore require a higher loan limit.
For example, the 2023 loan limit for Hawaii and Alaska is $1,089,300 for a single-unit home instead of the general conforming loan limit of $726,200.
The county-level conforming loan limits for 2023 can be found on both the FHFA and Fannie Mae websites. Referencing these limits can help lenders and mortgage originators adjust their guidelines to their specific areas and borrowers.
FHA and VA Loan Limits for 2023
The conforming loan limit is not the only mortgage limit increasing in 2023. The Federal Housing Administration (FHA) has also announced increasing its loan limits.
In 2022, the FHA loan limit was $420,680. It's jumped to $472,030 this year, directly responding to the increase in conforming loan limits. That's because the FHA loan limit and conforming loan limits are intertwined.
The National Housing Act dictates that the baseline FHA loan limit must be 65% of the current conforming loan limit. With the conforming loan limit jumping to $726,200 in 2023, it follows that the FHA loan limit must increase as well.
The Department of Veterans Affairs (VA) used to have similar loan limits. However, the Blue Water Navy Vietnam Veterans Act of 2019 repealed the old standard. Now, VA loans are no longer subject to federally-imposed limits.
Active-duty service members, veterans, and widowed spouses with full entitlement are eligible for mortgages above the conforming loan limit set by the FHFA. These borrowers must still be approved by a lender, however.
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What do Higher Limits Mean for Originators?
Many home mortgages are within conforming loan limits, so 2023's increase presents an opportunity for originators to source more business.
With increased loan limits come additional opportunities to serve a larger pool of borrowers. The higher limits present an ideal time for originators to help potential buyers purchase homes at or below the new limit to take advantage of lower interest rates and favorable terms.
How Mortgage Originators Can Navigate Conforming Loan Limits
Conforming loan limits are updated annually and can be a hassle if originators don’t treat them properly. Below are a few tips originators and lenders can follow to make navigating these loans easier.
Stay Informed: Continuously monitor changes in conforming loan limits, especially if you work in areas with high-cost housing markets. Educate Clients: Make sure your clients understand the benefits of conforming loans and how these limits might impact their financing options. Help them assess whether their desired loan amount falls within the conforming limits. Explore Jumbo Loans: For clients looking to finance properties above the conforming limits, explore jumbo loan options. These loans are designed for larger loan amounts and typically have stricter eligibility requirements, higher rates and fees, and more stringent underwriting. Rev up Local Expertise: If you work in areas with varying conforming limits, become a local expert. Know the specific limits for your market and how they may affect your clients. Customize Advice: Tailor your advice to each client's unique situation. Consider factors like credit score, down payment, and debt-to-income ratio when recommending loan options. Monitor Market Trends: Keep an eye on local housing market trends. As property values fluctuate, the conforming loan limits may adjust accordingly. Being proactive in anticipating these changes can benefit your clients. Network with Lenders: Build strong relationships with lenders who can provide you with up-to-date information on conforming loan limits and loan products available to your clients.
To stay informed of the latest conforming loan limits, bookmark this page for quick access to the most up-to-date information. With these guidelines in hand, you can better serve your clients' needs.
