High Balance Conforming Loan Limits in 2023

The conforming loan limits for 2023 have been announced by the Federal Housing Finance Agency (FHFA). These limits apply to conventional loans backed by Fannie Mae and Freddie Mac. For high cost areas the maximum conforming loan amount is higher than the baseline loan limits. These are known as high balance conforming loans.

What Are Conforming Loan Limits?

Conforming loans are mortgages that meet the size limits set by the FHFA for purchase by Fannie Mae and Freddie Mac. Loans above the limits are considered jumbo loans.

The baseline conforming loan limits represent the maximum loan amount for most areas. High balance loan limits apply to designated high cost counties and metro areas.

Conforming loans must also meet other criteria like maximum debt-to-income ratios and minimum credit scores But the conforming loan size limits are key requirements

2023 Conforming Loan Limits

Here are the conforming loan limits for 2023:

• Low-cost area limit for a single family home is $726,200
• High-cost area limit for a single family home is $1,089,300
• Limits are higher for 2- to 4-unit properties

These limits are up from $647,200 and $970,800 in low- and high-cost areas respectively in 2022.

What Are High Balance Conforming Loans?

High balance conforming loans fall between the regular conforming loan limit and the high cost area loan limit.

For example, in 2023 the high balance range for a single family home is $726,201 to $1,089,300 in designated high cost regions.

So high balance loans meet the general conforming criteria in terms of credit, income, etc. But exceed the baseline loan limit.

High balance loans have some unique guidelines and requirements compared to regular conforming loans below the standard limit.

High Balance Loan Requirements

High balance mortgages must meet eligibility criteria including:

• Minimum credit score: 700
• Maximum debt-to-income (DTI) ratio: 45%
• Reserves: 6 months for 1- to 4-unit properties
• Appraisal: Interior/exterior inspection required
• Mortgage insurance: Standard required coverage

So high balance loans allow larger loan amounts but come with tighter credit standards to mitigate risk.

How Are High Cost Areas Determined?

Each year FHFA analyzes housing data to designate high cost counties and metro areas where the high balance conforming loan limits apply.

Factors considered include housing costs relative to median incomes in an area. High cost areas have been defined as those where 115% of an area’s median home value exceeds the baseline conforming loan limit.

For 2023, there are high cost regions in 13 states plus Washington DC. High cost counties are found in:

• California
• Colorado
• Florida
• Hawaii
• Idaho
• Massachusetts
• Maryland
• New Hampshire
• New Jersey
• New York
• Pennsylvania
• Utah
• Virginia
• Washington
• West Virginia
• Washington DC

There are often multiple high cost counties within the broader metro regions.

Benefits of High Balance Conforming Loans

High balance loans offer several advantages over jumbo loans above the conforming limits:

• Lower rates: Interest rates on conforming loans are typically 0.25 to 0.5% lower than jumbo loan rates.

• Easier to qualify: Conforming loans like high balance mortgages often have lower credit score and down payment requirements than non-conforming jumbos.

• Lower mortgage insurance: Conforming loans may have lower mortgage insurance premiums than jumbos.

• Access to condo financing: High balance loans expand financing options for condos compared to jumbos.

• Broader secondary market: Fannie Mae and Freddie Mac can purchase high balance loans, providing lenders lower risk and greater liquidity.

So in high cost regions, high balance conforming loans give homebuyers expanded options between a baseline conforming loan and a jumbo.

Disadvantages of High Balance Conforming Loans

The trade-offs of high balance conforming loans include:

• Tighter requirements: Compared to regular conforming loans, high balance mortgages come with higher credit and reserve requirements.

• Higher fees: Large loan amounts often incur higher origination, underwriting and other lender fees.

• ARMs restricted: High balance loans are only available as fixed-rate mortgages, reducing flexibility.

• Loan amount limits: The high cost conforming limit may still be below the amount needed to purchase higher priced properties.

So while more flexible than jumbos, high balance conforming loans are more restrictive across some dimensions than conforming loans below the standard limit.

Outlook for Future Conforming Loan Limits

Loan limits are adjusted annually based on changes in FHFA’s housing price index. With home values projected to continue rising in 2023, conforming loan limits will likely also trend higher.

Higher loan limits expand home financing options. But also shift more risk to the GSEs. So the future path of limits will balance improving affordability against fiscal prudence.

With housing activity expected to cool somewhat, future hikes may moderate. But richer limits appear here to stay in expensive metros.

So for 2023, high balance conforming loans up to $1,089,300 expand financing flexibility for buyers in designated high cost counties. Just be aware these larger loans come with some trade-offs.