In response to increased home prices in 2022, the Federal Housing Finance Agency (FHFA) has announced a 12.21% increase to the baseline “conforming” conventional loan limit for mortgages to be acquired by Fannie Mae and Freddie Mac in 2023.
As of 1 January 2023, the base conforming loan limit – not the purchase price – will increase by $79,000 to $726,200 for single-family homes and one-unit properties. Only two U.S. counties were not assigned the increased baseline loan limit.
Several counties in California, Colorado, Idaho, New York, and Utah will have loan limits between $726,200 and $800,000. Additional counties in California, Colorado, Florida, Massachusetts, New Jersey, New York, Tennessee, and Washington will have loan limits between $800,001 and $1,089,299.
The new ceiling loan limit for one-unit properties in high-cost areas, which includes countries in California, Maryland, Massachusetts, Utah, Virginia, and Wyoming, will be $1,089,300, which is calculated at 150% of the base loan limit. The baseline loan limit for one-unit properties purchased in Alaska, Hawaii, Guam, and the U.S. Virgin Islands will also be $1,089,300.
The increased baseline loan limits may make it easier for first-time buyers and current homeowners to buy a home. Homeowners can also refinance their existing mortgage up to this new loan limit.
To purchase a home with a conforming loan above the limit for your county, borrowers will require a “non-conforming” or jumbo mortgage, which typically has higher interest rates.
Who are Fannie Mae and Freddie Mac?
Fannie Mae, the nickname for the Federal National Mortgage Association (FNMA), and Freddie Mac, the nickname for the Federal Home Loan Mortgage Corporation (FMCC), are government-sponsored enterprises or GSEs. Both GSEs buy about half of all U.S. mortgages each year from lenders and then repackage those mortgages into mortgage-backed securities for sale to investors on the secondary mortgage market. The practice makes those loans more secure and affordable for lenders and keeps credit available and relatively affordable to consumers, among other benefits.
How does the FHFA determine the conforming loan limit?
The conforming loan limits for Fannie Mae and Freddie Mac back loans are determined by the Housing and Economic Recovery Act of 2008, which established the baseline loan limit at $417,000. The Act and subsequent legislation mandated that, after a period of price declines, the baseline loan limit cannot rise again, although the limit can remain the same year-over-year until home prices return to pre-decline levels. 2023 is the seventh consecutive year of increases from the FHFA.
For high-cost areas, where 115% of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit is higher than the baseline loan limit. The Housing and Economic Recovery Act of 2008 established a maximum loan limit in those areas as a multiple of the area median home value while setting a “ceiling” on that limit of 150% of the baseline loan limit.