Map: See the 2023 Conforming Loan Limit in Your Area
As a homebuyer, you want to secure the best possible mortgage rate and terms for your chosen property. However, the cost of the home you’re considering can affect the type of mortgage available to you. The conforming loan limit (CLL) is the maximum amount of money you can borrow using a conventional mortgage that’s eligible for purchase by government-sponsored enterprises Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, adjusts the baseline limit each year based on the national average home price, with higher loan limits in certain areas with an above-average cost of living. Here’s what to know about the 2023 conforming loan limit, including which types of mortgages must adhere to these limits and what to consider before borrowing a jumbo home loan.
What Are the Conforming Loan Limits for 2023?
The baseline CLL for single-family homes throughout most of the U.S. is $726,200 for 2023, up from $647,200 in 2022. The FHFA increased this year’s limits significantly due to rapid home price appreciation in the past few years. Importantly, the CLL varies based on where the home is located and the type of property. The CLL for a single-unit property is up to $1,089,300 in areas with a high cost of living, such as pricey metropolitan areas and the entire states of Alaska and Hawaii. Here are the current minimum and maximum conforming loan limits based on property type:
| Property Type | Minimum Conforming Loan Limit | Maximum Conforming Loan Limit |
|---|---|---|
| One-unit | $726,200 | $1,089,300 |
| Two-unit | $929,850 | $1,394,775 |
| Three-unit | $1,123,900 | $1,685,850 |
| Four-unit | $1,396,800 | $2,095,200 |
You can search the interactive U.S. map below to see a county-by-county breakdown of the CLL by property type.
Conforming Loans vs. Jumbo Loans: What’s the Difference?
A conventional loan is considered conforming when it falls within the CLL, meeting the standards to be sold to Fannie and Freddie. The eligibility criteria for conventional conforming loans are set by Fannie and Freddie and include a credit score of at least 620, a minimum down payment of 3%-5%, and a debt-to-income ratio (DTI) of 36% or less. In contrast, a jumbo loan is a conventional loan that exceeds the CLL and is ineligible for purchase by Fannie or Freddie. Since jumbo loans are inherently more risky to originate, they often come with higher mortgage rates and stricter eligibility requirements, including a credit score in the 700s and a down payment of at least 20%.
What to Know About Buying a Home Above the Conforming Loan Limit
For those who have the financial means to choose a more expensive home, a jumbo loan is a financing option. However, it’s essential to consider a few things before borrowing more than the conforming loan limit:
It’s Harder to Qualify for a Jumbo Loan
Mortgage lenders want to minimize risk when originating jumbo loans, so be prepared to have your income, existing debts, and credit report scrutinized thoroughly. To qualify, you’ll need to have a FICO score of very good (740-799) or exceptional (800+), keep your debt-to-income ratio low, and bolster your cash reserves.
Jumbo Mortgage Rates Can Be Higher
Jumbo loans can’t be moved into mortgage-backed securities purchased by Fannie and Freddie, which means lending institutions have to hold these loans on their balance sheets. As a result, lenders often charge higher interest rates on jumbo loans to minimize their inherent risk.
Related Facts
- The CLL increased by more than 42% since 2020 when it was $510,400.
- Alaska and Hawaii are considered high-cost areas.
- Jumbo loans often require additional documentation, such as proof of substantial assets, to secure approval.
Key Takeaway
Understanding the conforming loan limit is essential when considering a home purchase and the type of mortgage that might be right for you. Even wealthier homebuyers should consider the added hurdles of securing and paying for a jumbo loan before deciding to buy a home above the conforming loan limit.
Conclusion
The 2023 conforming loan limit provides a baseline for the maximum amount of money you can borrow using a traditional mortgage. While stepping outside this baseline to take out a jumbo loan is an option, it may come at a higher cost and with additional financial scrutiny. By understanding these differences, you can make the right decision when considering a home purchase and applying for a mortgage.
