Understanding Conforming Loan Limits in California

California’s housing market is one of the most expensive in the nation, which means conforming loan limits play an important role for homebuyers Conforming loans are mortgages that meet the underwriting guidelines set by Fannie Mae and Freddie Mac These loans are desirable because they can be sold to the GSEs (government-sponsored enterprises), providing lenders with liquidity. This results in lower interest rates for borrowers. However, Fannie and Freddie place caps on the dollar amount they will purchase. These are called conforming loan limits.

What Are Conforming Loan Limits?

Conforming loan limits are maximum mortgage amounts that Fannie Mae and Freddie Mac are allowed to buy Loans above these limits are called jumbo loans The baseline conforming limit set by the Federal Housing Finance Agency (FHFA) applies to most of the U.S. In 2023, this limit is $726,200 for a single-family home. However, in more expensive real estate markets like California, the FHFA also sets higher limits. These county-specific conforming loan limits are based on home prices in the area.

Why Conforming Loan Limits Matter

Conforming loans typically have lower interest rates than jumbo loans because they are easier for lenders to sell to Fannie and Freddie. This gives lenders more liquidity, enabling them to offer better pricing. That’s why it’s important to know the conforming loan limits in the county where you want to buy. If your loan amount exceeds the limit, you’ll pay a higher rate with a jumbo loan. You may also have to meet stricter credit score and down payment requirements.

2023 Conforming Loan Limits in California

The FHFA has designated all counties in California as high-cost areas for 2023. This allows for higher conforming loan limits compared to the national baseline:

• 1-unit home: $726,200 to $1,089,300

• 2-unit home: $930,300 to $1,397,400

• 3-unit home: $1,123,350 to $1,685,050

• 4-unit home: $1,398,200 to $2,123,550

Los Angeles County has the highest limit at $1,089,300 for a single-family home. Marin, San Francisco, San Mateo, and Santa Clara counties are also over $1 million. Low-end limits still exceed $700k even in more affordable counties like Fresno, Kern, and San Bernardino. Check the FHFA website for specifics in your county.

Loan Limits Vary by Number of Units

Note that conforming loan limits increase for 2-4 unit properties to account for their higher values. So a duplex in San Francisco could potentially qualify for a conforming loan over $1.3 million in 2023. However, investment properties and second homes have lower limits – typically 175% of the regular 1-unit limit in that county.

Conforming Loans for Lower Cost Counties

Counties without the high-cost designation have lower conforming loan limits. But even “affordable” parts of California are expensive by national standards. For example, the conforming limit for most of the Central Valley is $726,200. That’s still $170k above the baseline for most of America. So homebuyers in California’s lower cost markets still benefit from the county-specific limits.

FHA Loan Limits in California

The FHA insures mortgages that meet its underwriting criteria. These loans have their own separate conforming limits. In 2023, the FHA floor for all of California is $522,750 for a single-family home. But most high-cost counties exceed that by a wide margin, with limits ranging from $644,000 to $1,089,300. Even in more rural counties, FHA limits are between $498,000 and $546,000.

Check Conforming Limits When Shopping

The key takeaway is to always check the conforming loan limits in your target county before applying for a mortgage. Going over the limit by even one dollar makes it a jumbo loan with higher rates and potentially tougher eligibility standards. And remember – Fannie, Freddie, and FHA limits are all different, so compare them side by side when mortgage shopping.

Tips for Staying Under Conforming Loan Limits

Here are some tips to keep your loan under the conforming limit in an expensive market like California:

• Put at least 20% down to reduce the amount you need to borrow.

• Look for homes priced at least 10% below the limit so you have room for closing costs.

• Get pre-approved early and show sellers you can close quickly with a conforming loan.

• Consider a 2-1 interest rate buydown to lower payments within conforming limits.

• Buy in a lower-cost county or suburb to access higher conforming limits.

• Improve your credit score to qualify for the best conforming loan rates.

While staying under conforming loan limits in California is tricky, the interest rate savings make it worthwhile. Check the current FHFA and FHA limits before you start shopping for a mortgage.