The 2023 Conforming Loan Limit and What it Means For You

The 2023 Conforming Loan Limit has officially been announced! Every year, the Federal Housing Finance Administration (FHFA) examines median home prices to determine a conforming loan limit. This limit remained relatively unchanged throughout most of the 2000s, with gradual yearly increases from 2016 through 2021. Then, from 2021 to 2022, the loan limit jumped by nearly $99,000! And this year? Another huge jump! The 2023 conforming loan limit of $726,200 means that more people will be able to qualify for financing to get the home of their dreams. 

What is a Conforming Loan?  

First, we’ll start with the basics. Conforming loans are those eligible to be backed by government-sponsored enterprises, like Fannie Mae or Freddie Mac. Loans above the limit are non-conforming, a.k.a. Jumbo loans, and are backed by private investors. Given the larger loan amounts and the smaller pool of resources available to private investors, Jumbo loans carry a greater risk and therefore come with strict qualifying requirements. Conforming loans, on the other hand, provide a better opportunity to qualify in the form of more lenient requirements. 

In other words, you may not have qualified for a $750,000 home in 2022 because you did not meet the extensive Jumbo Loan requirements. But in 2023, you’ll be able to take out a conforming loan even if you don’t have, for example, 20% down or the most perfect credit score. 

Why is This a Big Deal? 

We’re really excited about a $79,000 jump in the 2023 conforming loan limit because it means you can buy bigger with less. Take, for example, the fact that some Jumbo investors require 4-6 months reserves. (A stockpile of 4-6-months worth of mortgage payments in the bank). After the down payment and closing costs, that large of an amount of reserves is a struggle for some people. Conforming loans, on the other hand, require as little as 1-2 months reserves. Secondly, the majority of Jumbo loans require at least 10% down. But conforming loans allow for 5% down. So, on the purchase of a $750k home, a buyer can put down $37,500 in 2023 as opposed to the $75,000 they would have been required to put down in 2022. That’s a whole lot easier to afford.

Higher in Some Areas 

$726,200 is the baseline of the 2023 conforming loan limit and this number applies to the majority of the country. However, being calculated according to median home values, the 2023 conforming loan limit can vary in certain high-cost areas. For areas in which 115% of the local median home value exceeds the baseline, such as Nashville and San Francisco, conforming loan limits are higher. For example, Davidson and the surrounding counties have a conforming loan limit of $890,100. You can check out limits in your county using the FHFA’s map tool. 

Good News for All 

The new conforming loan limit is good news for Realtors, mortgage bankers, and most of all, buyers. You can increase your home budget with less risk of complications on the back end of the mortgage process because conforming loans are, overall, easier than Jumbo Loans. Put plainly and simply, the greater the conforming loan limit, the greater opportunity you have of purchasing your dream home. So, 2023, here we come! 

Ready to get pre-approved so you can start looking for homes today? We can help.