2023 Mortgage Loan Limits Align with Rising Home Prices
BY: Gretta Stilson
After analyzing a handful of contributing economic factors each year, the Federal Housing Finance Agency (FHFA) determines an upper limit on how much someone can borrow to purchase a residence using a conventional loan. This is called a “conforming loan limit.” The limit regulates the mortgage amount that can be sold to or guaranteed by Fannie Mae and Freddie Mac.
Typically, those conforming loan limits increase in tandem with rising home prices rather than inflation. For example, in 2022, the conforming loan limits jumped an unprecedented 18 percent for single-family homes, with incremental increases for multi-family residences with up to four units. In this case, home prices rose exponentially long before inflation became an economic concern.
In 2023, the conforming loan limit on a single-family home rose 12 percent, which is less than last year but still nearly twice the increase in recent history. The following loan limits went into effect on January 1, 2023:
Size of Residence | 2022 Conforming Loan Limit | 2023 Conforming Loan Limit |
---|---|---|
1 Unit | $647,200 | $726,400 |
2 Units | $828,700 | $929,850 |
3 Units | $1,001,650 | $1,123,900 |
4 Units | $1,244,850 | $1,396,800 |
While there are always exceptions to any rule, using a conventional mortgage loan secured by Fannie Mae or Freddie Mac typically provides the buyer with:
- Better interest rates
- Easier qualification criteria
- Potentially lower closing costs
The Local Housing Market
For reference, the median home listing in Dane County is $399,900 – well below the conforming loan limit. However, houses that used to fall around that median listing price could start to creep up toward the conforming loan limits in the future, so it is helpful that the FHFA annually adjusts those numbers.
In addition, the listing prices range from roughly $20K to just over $8M for all available inventory. So, even if the median home listing is safely below the limit, there are still homes exceeding the loan limit in our area.
In reality, housing prices continue to rise. And while inventory is increasing, it still remains low overall. That combination of limited supply and high demand could continue to drive up prices for a while. In fact, most houses are selling for full price or even above listing price.
How Loan Limits Affect You
With that in mind, here is a brief summary of how the conforming loan rate might benefit you personally now or down the road:
- You could purchase a home that exceeds the conforming loan limit as long as you have a down payment that brings the mortgage under that limit.
- You can invest in a multi-family residence with up to four units. Higher loan limits are especially helpful to investors breaking into the rental market for the first time because your first multi-unit mortgage loan will likely require more financing.
- You could refinance an existing Jumbo Loan or portfolio loan into a lower-interest, fixed-rate, conventional mortgage loan that now falls under the new limits.
- If you currently have an Adjustable Rate Mortgage (ARM) with a rising variable rate, you could refinance to lock in a more favorable fixed rate. While interest rates are slightly higher now than they have been the last few years, rates could be lower than your current situation if you can restructure and now qualify for a conventional mortgage loan.
In short, you have much more flexibility in purchasing a home, investing in a multi-unit residence, or refinancing your existing mortgage.
For more information about conforming loan limits, mortgage refinancing, or using the equity in your home to fund another financial goal, contact the mortgage loan professionals at the Lake Ridge Bank near you to schedule a one-on-one conversation.