Understanding Conventional Loan Limits in 2023

The conforming loan limit is an important concept for homebuyers to understand when applying for a conventional mortgage loan. This limit changes annually and determines the maximum loan amount that can be acquired for a conforming loan. As we enter 2023 it’s important for buyers to educate themselves on the new conforming loan limits in order to make informed decisions about their home financing options.

What is a Conforming Loan?

A conforming loan is a conventional mortgage loan that conforms to the underwriting guidelines established by Fannie Mae and Freddie Mac. These two government-sponsored enterprises set the standards for what is considered a “conforming loan”. To be conforming, a loan must meet certain requirements related to loan amount, down payment, borrower credit, and other factors. The main advantage of a conforming loan is that it can be sold to Fannie Mae or Freddie Mac on the secondary mortgage market. This makes conforming loans widely available and at lower interest rates compared to non-conforming or jumbo loans.

What Are the Conforming Loan Limits for 2023?

The Federal Housing Finance Agency (FHFA) sets conforming loan limits each year based on changes in the average US. home value. For 2023, the baseline conforming loan limit for a one-unit property will be $726,200, up from $647,200 in 2022 This baseline applies to most of the continental U.S. Here are the specific 2023 conforming loan limits

• 1-unit properties: $726,200
• 2-unit properties: $930,300
• 3-unit properties: $1,117,000
• 4-unit properties: $1,398,550

In higher cost areas like major cities, the loan limits are even higher For example, in San Francisco the limit for a one-unit property will be $1,089,300 in 2023 You can check the conforming limit that applies to your county using Fannie Mae’s Loan Limit Lookup tool.

Why Do Loan Limits Matter?

Conforming loan limits are important because they determine whether you will be able to acquire a conventional loan or have to look at alternative options. If the mortgage amount you need is higher than the conforming limit for your area, you won’t be able to get a conforming loan. In that case, you’d have to consider a jumbo loan which comes with higher rates/fees or more stringent borrowing requirements.

It’s also about cost savings in many cases. By staying under the conforming loan limit, homebuyers can take advantage of the most competitive interest rates and easiest qualifying guidelines. Even being slightly above the limit can mean paying 0.25% – 0.5% higher rates.

Tips for Staying Within Conforming Loan Limits

Here are some tips for making sure your loan amount stays within the 2023 conforming loan limits:

• Put down a larger down payment – The lower the loan amount needed, the more likely you are to stay within limits. Aim for a 20% down payment if possible.

• Look at lower priced homes – Consider reducing your price range to keep the loan amount conforming. This may require sacrifices on size, location, etc.

• Buy a lower unit property – The conforming limits are higher for 2-4 unit properties than a single family home.

• Take out a small second mortgage – You may be able to do 80% financing with a conforming first mortgage and 10% second mortgage.

• Use loan programs that allow gifts – Some programs allow gifts from family for the down payment, lowering your loan amount.

• Buy down your interest rate – Paying points to get a lower rate can bring your mortgage amount within the conforming limit.

By understanding the latest conforming loan limits and employing savvy financing strategies, you can maximize your chances of qualifying for a conventional loan in 2023. This should lead to a smoother home buying journey with better rates and terms.