A dollar ain’t worth what it used to be; just take a look at the newly released 2023 conforming loan limits.
Yes, they will exceed $1 million in high-cost areas beginning next year, which is a testament to just how much property values have risen lately.
Of course, the year-over-year change actually pales in comparison to the jump seen a year earlier.
This is due to a slowdown in home prices, which was somewhat captured by the Federal Housing Finance Agency’s (FHFA) third quarter report.
For one-unit properties, the national baseline will rise to $726,200, an increase of $79,000 from $647,200 in 2022.
2023 Baseline Conforming Loan Limit Rises to $726,200
• One-unit property: $726,200
• Two-unit property: $929,850
• Three-unit property: $1,123,900
• Four-unit property: $1,396,800
The FHFA determines the conforming loan limit each year, basing it on the average U.S. home value over the past four quarters.
They utilize their own Federal Housing Finance Agency House Price Index (FHFA HPI®) to determine how much home prices have risen in the preceding 12 months.
This captures home price movement from the third quarter of 2021 to the third quarter of 2022.
Their latest HPI found that property values had risen 12.21% over the past four quarters, which allowed them to raise the conforming loan limit by the same amount.
As such, home buyers and those looking to refinance will be able to get a mortgage backed by Fannie Mae or Freddie Mac (conforming loan) as large as $726,200 for a one-unit property.
Typically, conforming loans are easier to qualify for than jumbo loans, those which exceed the conforming loan limits.
Additionally, mortgage rates are often lower on conforming loans, though lately it’s been a bit mixed due to adverse conditions in the secondary market.
We’re actually lucky the conforming loan limit for 2023 rose as much as it did, as home prices have decelerated immensely.
Despite experiencing positive annual appreciation each quarter since the start of 2012, home values were up just 0.1% in the third quarter from a quarter earlier.
That meant the 12.21% increase was significantly lower than the 18% increase in loan limits seen a year prior.
And the way things are going, we could see a negative number in the fourth quarter from the third.
2023 High-Cost Loan Limits Exceed $1 Million
• One-unit property: $1,089,300
• Two-unit property: $1,394,775
• Three-unit property: $1,685,850
• Four-unit property: $2,095,200
As noted, the high-cost loan limits are, well, even higher, exceeding $1 million for the first time ever.
This means existing homeowners and prospective home buyers in places like Los Angeles, the Bay Area, New York City, and even Park City will be able to obtain Fannie/Freddie-backed mortgages for seven figures.
Specifically, the new ceiling loan limit for one-unit properties in these areas will be $1,089,300, which is 150 percent of the 2023 baseline limit of $726,200.
And if we’re talking about a four-unit investment property, loan amounts can exceed $2 million, which is bonkers.
Additionally, in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline loan limit matches the high-cost loan limit of $1,089,300 for one-unit properties.
The FHFA noted that because of rising home values, the loan limits will be higher next year in all but two U.S. counties or county equivalents.
Prior to this announcement, several mortgage lenders increased their conforming loan limit in anticipation of the higher loan limits.
For example, the nation’s top mortgage lender, Rocket Mortgage, began accepting loan amounts as high as $715,000 back in September via their wholesale division Rocket Pro TPO.
And the nation’s new top mortgage lender (as of the third quarter of 2022), United Wholesale Mortgage, did the same shortly thereafter.
It appears they played it safe, knowing home price appreciation would be sufficient to keep their speculative loan limits below the official ones.
2023 FHA Loan Limits
• One-unit property: $472,030
• Two-unit property: $604,400
• Three-unit property: $730,525
• Four-unit property: $907,900
Loan limits on FHA loans are also dictated by the conforming loan limits, with 65% of the CLL used for the floor and 150% used for the ceiling.
This means the 2023 FHA loan limits will be $472,030 in low-cost areas and as large as $1,089,300 in high-cost areas.
The 2023 FHA loan limit rises $51,350 from $420,680 in 2022. All in all, good news for prospective home buyers and those looking to refinance.
For properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the FHA loan limits are even higher than the conforming ones.
• One-unit property: $1,633,950
• Two-unit property: $2,092,150
• Three-unit property: $2,528,775
• Four-unit property: $3,142,800
Yes, you read that right, $3 million+ FHA loan limits for certain multi-unit properties. Wow.
Simply put, most borrowers shouldn’t need a jumbo loan in 2023.