Article Excerpt
The federal government has increased the limit on conventional mortgages for 2023. Learn more about what this can mean for homebuyers.
The Federal Housing Finance Agency (FHFA) sets limits every year on the maximum amount of conventional mortgages, known as conforming loan limits. Housing prices have been rising for some time now. As a result, conforming loan limits have also risen.
The baseline conforming loan limit for 2023 for single-unit residential properties is $726,200. This is a $79,000 increase over the corresponding limit for 2022, and a $177,950 over 2021. The baseline amount will apply in most counties throughout the U.S., but the limit could be larger in counties with higher home prices. FHFA conforming loan limits in high-cost areas could be as much as $1,089,300.
The baseline amounts for the new conforming loan limits for 2023 are as follows:
|
Low-cost Area |
High-cost Area |
|
|---|---|---|
1-Unit Conforming Loan Limit |
$726,200 |
$1,089,300 |
2-Unit Conforming Loan Limit |
$929,850 |
$1,394,775 |
3-Unit Conforming Loan Limit |
$1,123,900 |
$1,685,850 |
4-Unit Conforming Loan Limit |
$1,396,800 |
$2,095,200 |
What is a conforming loan limit?
A conforming loan limit is the maximum amount of a mortgage loan that meets the criteria established by Fannie Mae and Freddie Mac for a conventional mortgage, or the FHA’s requirements for certain government-backed loans. Fannie Mae and Freddie Mac are government-sponsored entities (GSEs) that buy mortgage loans from lenders and sell them to investors in a secondary market. This promotes home ownership by providing lenders with additional cash to make more loans.
The GSEs take on risk by buying loans from lenders. They set various standards for the loans, such as minimum credit scores, minimum down payments, and maximum debt-to-income ratios (DTIs). The FHFA sets maximum limits on the amounts of those loans. This ensures that Fannie Mae and Freddie Mac do not take on too much risk and have enough cash available to keep the cycle of buying and selling loans in motion.
A loan that exceeds the current conforming loan limit is known as a jumbo loan. It is not eligible for purchase by Fannie Mae or Freddie Mac. This makes it a riskier venture for a lender. If a lender is willing to make a jumbo loan at all, it will almost certainly charge more interest, require a larger down payment, and set strict requirements for credit scores and DTIs.
Read more about the services that Fannie Mae and Freddie Mac provide.
How are conforming loan limits determined?
The FHFA determines conforming loan limits based on home prices. Every year, it issues a report on the House Price Index (HPI) based on nationwide data. It uses HPI data from the third quarter of the year to determine the conforming loan limits for the following year. The more home prices increase, the more the following year’s conforming loan limits will rise.
Is there a different 15-year or 30-year conforming loan limit?
The term of a conventional mortgage loan does not affect the limit set by the FHFA. A 15-year mortgage has the same upper limit as a 30-year loan.
When are conforming loan limits announced?
Since the FHFA uses third-quarter data to determine the following year’s limits, it is able to announce the new conventional loan limits late in the year. The official announcement of the 2023 conforming loan limits, for example, came out on November 29, 2022.
Conforming Loan Limits in Texas
All conforming loan limits in Texas are at the low-cost level, or $726,200 for a single-unit property. No Texas counties meet the criteria for a high-cost area.
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Examples of high-cost areas include:
All Alaska boroughs and census areas
All Hawaii counties
The District of Columbia
Guam
The U.S. Virgin Islands
Los Angeles County, California
San Francisco County, California
Santa Clara County, California
Teton County, Idaho
Prince George’s County, Maryland
Nantucket County, Massachusetts
Hudson County, New Jersey
New York County, New York
Westchester County, New York
Pike County, Pennsylvania
Arlington County, Virginia
King County, Washington
Jefferson County, Wyoming
The FHFA’s website features a map that shows the conforming loan limits in each county and county equivalent throughout the country.
What does the conforming loan limit increase mean for homebuyers?
A conforming loan limit increase gives homebuyers more options. Suppose, for example, that it is November 2022, and a buyer has fallen in love with a particular home. The home price is $700,000, which is greater than the 2022 conforming loan limit of $647,200. The buyer might have no other option but to seek a jumbo loan with stricter requirements and a higher interest rate.
If the seller is willing to wait until January 2023, though, the buyer’s options will increase. The conforming loan limit has increased to $726,200.
The seller’s price is now less than the conforming loan limit for a single-unit property. The buyer can obtain a conventional mortgage with easier qualifications and — when compared to jumbo mortgages — better interest rates!
Are you an eligible homebuyer?
The dream of home ownership is within reach for thousands — perhaps millions — of Americans thanks in part to safeguards established by entities like Fannie Mae, Freddie Mac, and the FHFA.
The right mortgage for your unique circumstances could be out there. You might just need a little help to find it. The home mortgage professionals at The Wood Group of Fairway are here to answer your questions, address your concerns, and discuss your options. Get started on your free pre-approval today!
