Conventional loan limits for 2023 were announced today by FHFA, and while the numbers weren't too surprising, one number that stands out is that the high cost area threshold for conventional loans has exceeded $1 million.
This is important because in many high priced markets, down payment is a major hurdle to potential home buyers - think about it. On a $400,000 home, a 5% down payment is $20k. That same home in a high priced market like the bay area could easily be $1.2 million, and that same 5% down payment is $60,000.
Prior to these loan limit increases, many borrowers were left with just jumbo options, many of which require a much larger (usually 15% for competitive rates) down payment. A borrower that previously had to come up with 15% down on their $1.2M home ($180,000!) can now get into a new home with just 1/3 of that down payment, opening the doors to home ownership to more borrowers.
Important to note is that conventional loan limits don't just affect first time home buyers. This change means people can now consolidate debt into a home loan up to the new limits. Investors can borrow up to the new limits as well. This is obviously a double edged sword as it opens up more financial options, but also allows for an easy way to accumulate large sums of debt and leverage on real estate.
For most markets in the US, the loan limit has increased to $726,200, and that limit increases exponentially for multi-unit properties. You can see the updated limits in the chart below:
Baseline Loan Limits | |||
|
Contiguous States, District of Columbia, and Puerto Rico |
Alaska, Guam, Hawaii, and U.S. Virgin Islands |
||
One |
$726, 200 |
$1,089,300 |
|
Two |
$929, 850 |
$1,394,775 |
|
Three |
$1,123,900 |
$1,685,850 |
|
Four |
$1,396,800 |
$2,095,200 |
|
High-Cost Area Loan Limits | ||
Units |
Contiguous States, District of Columbia, and Puerto Rico |
|
One |
$1,089,300 |
|
Two |
$1,394,775 |
|
Three |
$1,685,850 |
|
Four |
$2,095,200 |
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