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Important information on this loan type.

For home finance professionals and hopeful 2023 buyers, the new year means one thing (well, more than one, but this is a big one): New conforming loan limits!  

Whether they’re well-versed in conforming loans or just dipping their toes in, helping borrowers understand the allowable dollar amounts this year could be critical in finding and financing their dream home.

Explaining Conforming Loans to Borrowers

A conforming loan is a mortgage valued at or below the loan limits set forth by the Federal Housing Finance Agency (FHFA).

Conforming loans must also be aligned with the funding criteria laid out by Fannie Mae and Freddie Mac, and the qualification process typically includes reviewing borrower aspects such as loan-to-value (LTV) ratio, debt-to-income (DTI) ratio, credit score, and more.

Helping Borrowers Understand Loan Limits

In layman’s terms, loan limits refer to the dollar amount used as a ceiling when taking out a conforming loan. These limits are set by the FHFA and must meet the funding criteria of Fannie Mae and Freddie Mac. Limit amounts change each year and can even vary based on location. For example, in certain parts of the country the loan limits may be higher than areas with more affordable housing options.  

Understanding 2023 conforming loan limits is critical because it can help borrowers gain a clear picture for how much they may qualify for, keep your expectations in check, and potentially even clarify how close you might be to successfully achieving homeownership.

2023 Conforming Loan Limits

In late November, the FHFA set and released 2023’s conforming loan limits. This year, the limit for one-unit properties is $726,200 for most of the U.S. That’s an increase of $79,000 from 2022’s limit.  

Areas with higher costs of living, like New York City and San Francisco, are held to a loan limit of $1,089,300. This figure is 150% of $79,000, the standard loan limit for much of the rest of the country. To determine if you live in a high cost of living area, consult a local home finance expert. Otherwise, don’t count on the $1,089,300 loan limit.  

There are also special statutory provisions for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the loan limit is also $1,089,300 for 2023.

What if Your Borrowers Need to Borrow More?

Of course, a conforming loan will not be right for everyone. Some borrowers may want or need to spend more than the loan limit allows. In this case, they’ll need to explore other loan types.  

While an FHA, USDA, VA, or conventional loan may be a great choice for home purchases at or below the loan limit, buyers specifically looking to borrow more should explore nonconforming or jumbo loans. These mortgages are used when financing properties with prices exceeding established loan limits.  

Borrowers should keep in mind that because jumbo loans are not insured by Fannie Mae or Freddie Mac, they pose more risk for lenders. That could mean higher interest rates or more stringent requirements.

2023 Conforming Loan Limits: A Guide for Borrowers

Whatever their financial situation, understanding conforming loans and their associated annual limits can help borrowers grow their knowledge, expand their options, and even empower them during their home search. Here’s to homeownership in 2023!  

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