Conforming Loan Limits Increase Again
The end of the year often brings great news for homeowners and homebuyers. It's the time of year when conforming loan limits are (usually) increased. These increases apply to loans backed by Freddie Mac and Fannie Mae; VA loans are also positively affected. They hit a new high last year and are projected to grow more in the near future.
What is a conforming loan?
Per the Consumer Financial Protection Bureau (CFPB), a conforming loan must meet specific criteria that allow Freddie Mac and Fannie Mae to purchase the loan. The mortgage giants pay the most attention to the loan limit, which alludes to the maximum loan amount they will buy. These limits often change from one year to the next to account for the latest market changes.
Conforming loans remain an attractive option for buyers because they usually offer a lower interest rate than a non-conforming loan. Unlike conforming loans, a non-conforming loan can’t be purchased by Fannie or Freddie. There’s a good chance you’ll explore this type of loan if you’re hoping to buy a more expensive house and need to apply for a jumbo loan.
Conforming loan requirements
To qualify as a conforming loan and to receive the benefits of increased loan limits, the loan must meet qualifying guidelines set by Fannie Mae or Freddie Mac. This includes:
Meeting minimum credit score requirements (generally 620 FICO)
Along with other key underwriting criteria
And most importantly, the loan amount must be at/below the conforming loan limit
The reason for the increase in loan limits
Each year the Federal Housing Finance Agency (FHFA) increases or decreases the conforming loan limits so they are in line with home prices.
Changes are based on the October-to-October home price movement and go into effect the following January.
How will loan limits change in 2023?
2023 has brought another increase in conforming loan limits. In most of the U.S., the average conforming loan limit is $715,000 for a single-family home. However, in high-cost living areas like Alaska, Hawaii, Washington D.C., Guam, and the U.S. Virgin Islands, the conforming loan limit tops out at $1,073,000.
What home buyers need to know
Homeownership is within reach, thanks to the increase in conforming loan limits. The bottom line: it’s easier to qualify for more home without requiring a non-conforming jumbo loan.
Rates remain competitive, so be sure to start the mortgage pre-approval process soon. Your lender can provide a pre-approval letter that tells you how much home you can afford.
What homeowners need to know
The loan limit increases don’t just benefit home buyers; they help homeowners, too. You can now access more equity, which means more cash in hand when you choose a cash-out refinance. Those funds can be used to pay off debt, finance home improvements, or even pay for a child or family member’s college tuition. It’s your choice! Depending on your lender, you may also be able to refinance without resetting your loan term — creating even greater long-term savings.
What veterans and active duty military need to know
The VA changes the loan limit once every year to keep pace with the average U.S. home price. The limit is a cap on the amount the VA will guarantee, not on the amount you can borrow. The guarantee is an assurance from the Department of Veterans Affairs to repay the lender if the borrower defaults on the mortgage. Lenders can write loans higher than the maximum county loan limit; however, lenders may require Veterans to make a down payment for the amount borrowed over the applicable county loan limit.
Ready to apply for a mortgage?
Learn about new home purchase loans and mortgage refinance options from one of our salary-based mortgage consultants. Schedule an appointment online or give us a call at (800) 910-4055.