What Is The Conforming Loan Limit For 2023?

While there are many types of mortgages to choose from, the most common is known as a conforming loan. These loans get their name from the fact that they meet conforming loan limits. These loans have some key benefits to borrowers, including their affordability. However, they also have some limitations that may not work for all borrowers.

What Is A Conforming Loan?

A conforming loan is one that meets the loan limits set by the Federal Housing Finance Agency (FHFA) and that meets the borrowing criteria set by Fannie Mae and Freddie Mac guidelines. Conforming loans are underwritten by private lenders and then often sold to Fannie Mae and Freddie Mac to be securitized and sold to investors.

Conforming loans are often referred to interchangeably with conventional loans, but the two aren’t exactly the same. A conventional loan refers to any loan that’s not backed by the federal government, regardless of whether it meets the FHFA loan limits or Fannie Mae and Freddie Mac’s guidelines. A conforming loan, on the other hand, must meet all of those requirements.

A loan can be both conforming and conventional at the same time, meaning it’s not backed by the federal government and meets all FHFA, Fannie Mae and Freddie Mac requirements. In fact, most mortgages are both conforming and conventional.

What Is The Conforming Loan Limit?

The conforming loan limit is the maximum dollar amount you can borrow for a mortgage loan in a particular year, based on what government-sponsored enterprises Fannie Mae and Freddie Mac will purchase or guarantee. The FHFA carefully reviews and updates this limit at the end of each year to reflect shifting housing market values. Any loan that doesn’t fall under the FHFA limit is considered a jumbo loan.

Understanding How The Conforming Loan Limit Works

Fannie Mae and Freddie Mac perform an important function in the mortgage industry. Once mortgages are underwritten, they purchase them from lenders, securitize them and sell them to investors. This service gets the loans off the books of the lenders, which allows them to then write more mortgages. However, they can only purchase loans that fall under the conforming loan limits.

The current FHFA limits for each year are based on the current housing market in the United States. The number has increased from $33,000 in the early 1970s to more than $700,000 in 2023. From 2022 to 2023, the conforming loan limit increased by more than 12% to account for rising home values.

Conforming Loan Limits 2023

In 2023, the baseline FHFA conforming loan limit for a single-family home is $726,200. The number is higher for two-, three- and four-unit homes. Additionally, home buyers in high-cost areas may have a loan limit that is up to 150% higher than the baseline limit.

The 2023 loan limits have increased from the 2022 limit. The baseline conforming loan limit for a single-family home or one-unit property is now $726,200. And in higher-cost areas, like Hawaii and Alaska, the limit is $1,089,300.

High-cost areas where the median home price exceeds the conforming loan limit may have a loan limit that’s higher than the baseline limit.

To qualify as a high-cost area, 115% of local median home values must exceed the baseline conforming loan limit, but the ceiling is capped at 150% of the baseline limit. Expensive cities such as New York City and Los Angeles, as well as the states of Hawaii and Alaska, are examples of places that qualify as high-cost areas because home values are significantly higher here than in other parts of the country.

It’s important to note that in very expensive cities, even the high-cost conforming loan limit may not be sufficient to buy many homes. For example, in San Francisco, the median home price exceeds the conforming loan limit for that area, which adds an additional challenge to home buying.

The FHFA’s conforming loan limit values map is an interactive tool that can help home buyers find the loan limits for their area.

Why Are Conforming Loan Limits Important?

Conforming loan limits set the standards for what loans Fannie Mae and Freddie Mac can purchase. Any loan that exceeds the conforming loan limits is considered a jumbo loan. And unfortunately, jumbo loans have some downsides that include higher interest rates and stricter borrowing requirements.

If the home you’re considering purchasing exceeds the loan limit but you don’t wish to take out a jumbo loan, you may have other options. For example, you could do one of the following: 

• Make a larger down payment. When you make a larger down payment, you’ll need to borrow less money. This can help you stay within the conforming limit.
• Take out a second loan. If you’re eligible, you can take out a second mortgage in addition to your conventional loan to cover the difference in the home value. Keep in mind, however, that this means you’ll have two mortgages to pay. And depending on the price of the house, this method may not be viable or advised.

The Bottom Line

When you’re shopping for your next home, it’s important to keep your area’s conforming loan limits in mind. Because jumbo loans have different requirements, you may wish to keep your home purchase within the loan limits.

When you’re ready to take the next step in your house hunt, we can help. Start the application process today to see what your financing options are.