The conforming loan limit is the maximum amount of money a homebuyer can borrow using a conventional mortgage that’s eligible for purchase by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, 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.
A home with an effective purchase price beyond the conforming loan limit must be financed through a nonconforming jumbo loan, which comes with stricter credit score and income requirements. 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.
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What Are the Conforming Loan Limits for 2023?
The baseline conforming loan limit, or 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. In fact, the CLL has increased by more than 42% since 2020, when it was $510,400.
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?
The CLL applies to conventional loans, which are simply mortgages that aren’t backed by a government agency. A conventional loan is considered conforming when it falls within the CLL, meeting the standards to be sold to Fannie and Freddie, the two government-sponsored enterprises that purchase mortgages from banks and lenders.
The eligibility criteria for conventional conforming loans are set by Fannie and Freddie. In most cases, a borrower must have a credit score of at least 620, a minimum down payment of 3% to 5%, and a debt-to-income ratio, or DTI, of 36% or less. However, a borrower may qualify with a DTI of up to 45% if they meet certain credit or income requirements. Keep in mind that a lender is free to set its own eligibility standards as well, known as lender overlays.
Conventional loans that exceed the CLL are known as jumbo loans, which are ineligible for purchase by Fannie or Freddie. Since jumbo loans are held on a bank or lender’s balance sheet rather than bought by Fannie and Freddie, they are inherently more risky to originate, and they often come with higher mortgage rates.
Additionally, jumbo loan lenders have stricter eligibility requirements when it comes to an applicant’s credit history, income and existing debts. A borrower typically needs a credit score in the 700s and a down payment of at least 20% in order to qualify for a jumbo loan.
What to Know About Buying a Home Above the Conforming Loan Limit
For the typical homebuyer, finding a reasonably priced home within the CLL is a smart move. But for wealthier homebuyers who have the financial means to choose a more expensive home, a jumbo loan is a financing option. Here are a few things to consider before borrowing more than the conforming loan limit:
It’s harder to qualify for a jumbo loan. If you’re considering buying a high-priced home using a mortgage, you’ll need to prove you have the financial stability to afford it. Mortgage lenders want to minimize risk when originating jumbo loans, so be prepared to have your income, existing debts and credit report scrutinized thoroughly. Here’s how to qualify for a jumbo loan:
- Work on improving your credit score early. You’ll want to have a FICO score of very good (740-799) or exceptional (800+) in order to have the best chances at jumbo loan approval.
- Keep your debt-to-income ratio low. You can improve your DTI by finding ways to increase your income or by paying off existing debts like revolving credit card balances and auto loans.
- Bolster your cash reserves. Your cash reserves should cover your down payment of 20% or higher, closing costs and at least six to 12 months’ worth of mortgage payments.
Jumbo mortgage rates can be higher. Jumbo loans can’t be moved into mortgage-backed securities purchased by Fannie and Freddie, which means they’re held on bank balance sheets. To make up for the added liability, banks and lenders may charge higher mortgage interest rates for jumbo loans, making them more expensive to repay over time.
Luxury homes may not hold their value. One of the biggest incentives for buying a home is that it’s likely to appreciate over time, helping the buyer build wealth in the form of equity. But small and midsize homes are more likely to appreciate than expensive homes, research shows. Keep in mind that a multimillion-dollar home is less of an investment vehicle and more of a discretionary purchase.
Government-Backed Mortgages May Also Have Loan Limits
FHA Loan Limits
FHA loans, backed by the Federal Housing Administration, also utilize the FHFA’s conforming loan limit. But instead of splitting up the limits by county, the FHA determines the loan limit by metropolitan statistical area, or MSA.
In low-cost areas, which includes most of the country, the FHA loan limit “floor” is 65% of the baseline conforming loan limit – $472,030 for a single-unit property in 2023. In select high-cost areas like New York City, San Francisco and the District of Columbia, the FHA loan limit “ceiling” is 150% of the CLL, or $1,089,300 this year. Many midsize cities like Atlanta, Boston and Denver fall somewhere in between the floor and the ceiling.
|Special Exception Areas*
*Includes Alaska, Guam, Hawaii and the U.S. Virgin Islands
FHA loans have more lenient eligibility requirements, with a minimum credit score of 580, a minimum down payment of 3.5% and a maximum DTI ratio of around 50%. Borrowers with credit scores as low as 500 may qualify for an FHA loan, but they’ll need to put at least 10% down.
USDA Loan Limits
USDA home loans are issued to low- and moderate-income homebuyers in designated rural areas. There are two types of USDA loans: mortgages that are guaranteed by the U.S. Department of Agriculture, and mortgages that are funded directly by the department.
USDA guaranteed loans don’t have a set borrowing limit, but the maximum income threshold effectively keeps loan amounts below the CLL. On the other hand, USDA direct loans have area loan limits – between $377,600 and $970,800 for single-family homes in 2023.
VA Loan Limits
In many cases, veterans who are borrowing a VA loan, backed by the Department of Veterans Affairs, don’t need to adhere to the FHFA’s conforming loan limits. There’s no loan limit for VA loan borrowers who have full entitlement, but lenders typically have stricter eligibility requirements for larger loan amounts.
That being said, some qualifying active and retired military personnel must be aware of the CLL. Those with limited entitlement can only get a VA purchase loan if it falls within their area’s CLL. You can learn more about your entitlement status through the VA website.