The high balance loan limits for 2023 are as follows:
Baseline conforming loan limit: $726,200
High-cost area loan limit: $1,089,300
In 2021, the baseline conforming loan limit was lower by $177,950, and in 2022, it was lower by $79,000. The conforming loan limits can be even higher in high-cost areas and go up to $1,089,300. The conforming loan limit has never gone above $1 million before.
In this article, we will go over high balance loan limits in 2023, loan limit changes, eligibility, and more.
Loan Limit Values for 2023 high balance loan.
The loan limit values for 2023 high balance loan are:
Baseline conforming loan limit: $726,200
High-cost area loan limit: $1,089,300
The increase in loan limit values will greatly benefit home buyers. However, let’s make sure you are familiar with what a conforming loan is.
Buying a house is undoubtedly one of the most significant investments one can make in their lifetime. To ensure financial feasibility it’s common practice for individuals to secure funding. It can be done from either a bank or mortgage lending institution. However, there are limits to it. A conforming loan limit is like a financial boundary or limit set by government agencies or loan organizations. It is to define the maximum amount of money they are willing to lend for a mortgage while still considering it a “conforming” loan. They are backed by Fannie Mae and Freddie Mac. These are government-sponsored entities (GSEs).
The reason these limits exist is to establish some consistency and standardization in the mortgage market. By setting a conforming loan limit, lenders can ensure that the loans they provide fall within certain parameters. This makes them more attractive to investors and easier to sell in the secondary mortgage market. When a loan amount falls within the conforming loan limit, it means it meets the guidelines and requirements set by the loan agencies. This typically implies that the loan carries lower interest rates and more favorable terms. It is because it’s seen as less risky and more easily tradable.
It’s worth noting that conforming loan limits can vary based on factors such as the location of the property. In areas with higher home prices, the conforming loan limit might be set higher. This is to accommodate the costlier real estate market.
High balance loans are mortgage loans that exceed the standard conforming loan limits. The so-called limits are set by government agencies or loan organizations. These loan limits are typically determined based on factors such as the location of the property. And, they are meant to establish maximum loan amounts that are considered “conforming”. Conforming loans are eligible for certain benefits, such as lower interest rates and more favorable terms. When the loan amount surpasses the conforming loan limit, it enters the realm of high balance loans. These loans are designed to accommodate borrowers who are looking for financing. These types of loans are directed toward properties located in high-cost areas. These areas are where real estate prices are generally higher than the national average.
If a loan amount exceeds the conforming loan limit, it is considered a “jumbo” loan. A jumbo loan is when the high balance conforming loan limit is also crossed. Jumbo mortgages often come with different requirements. Some examples include higher interest rates and stricter qualification criteria. This is because they are outside the standard limits set by loan agencies. They are not backed by Fannie Mae and Freddie Mac, which makes it riskier. These kinds of loans are called “non-conforming loans”.
Most of the counties in the US in 2023 have $726,200 as the high balance loan limit. However, if you are living in a high-cost area, the loan limit is higher and goes above $1 million. The examples of high-cost counties include Alaska, Hawaii, Los Angeles County, and Santa Clara County. Some others are San Francisco County, New York County, etc. There are limits by county so, do your research. This is because depending on where you live, it can vary.
What are the High balance loan limit changes for 2023?
The high balance loan limit changes for 2023 are that the baseline high balance loan limit is $726, 200 and for high-cost areas, it is $1,089,300. In 2021, the baseline limit was lower by $177,950, and in 2022, it was lower by $79,000. Increasing the borrowing limit is beneficial.
The increase in the conforming loan limit brings good news for homebuyers in high-cost areas. It means that they now have the opportunity to access more affordable financing options. Typically, conforming loans come with lower interest rates compared to jumbo loans. Let us take an example to understand this better. Suppose you’re interested in buying a home. The home is in Los Angeles County, California, where the median home value is $750,000. Without the increase in the conforming loan limit, you would have had to qualify for a jumbo loan to purchase a home in that price range. However, thanks to the conforming loan limit increase, you may now be eligible for a conforming loan, which offers lower interest rates. This change provides homebuyers with a more favorable financing option.
Your credit score and down payment amount are still important factors in qualifying for a conforming loan. However, the increase in the conforming loan limit is still beneficial for homebuyers in high-cost areas. It is a positive development as it expands the loan options available to them when purchasing a home.
What is the High balance loan limit eligibility for 2023?
You have to meet the High balance loan limit eligibility for 2023. Jumbo loans or high balance loans require you to meet some eligibility criteria. Let us discuss them.
To be eligible for a 3.5% down payment, borrowers need a credit score of at least 580. If their credit scores fall between 500 and 579, they can still qualify but would need a 10% down payment. Additionally, borrowers are required to pay a mortgage insurance premium (MIP). Their debt-to-income ratio must be below 43%. This indicates that their monthly debt payments should not exceed a certain percentage of their income. It’s important to note that FHA loans can only be used for primary residences. They cannot be used for purchasing vacation or even investment properties. Borrowers must provide proof of employment as well as regular income. This demonstrates that they have stable income sources and are not employed on a casual or on-call basis.
Moreover, borrowers should take note of the following factors:
- Maintain higher credit scores: Depending on the lender, a credit score of at least 700 or 720 may be required for obtaining a jumbo loan.
- Possess cash reserves: Cash reserves may be required. Certain lenders may expect borrowers to provide evidence of having cash reserves. This indicates that they can cover a full year’s worth of loan payments.
- Be ready for extra documentation: FHA jumbo loans typically involve more extensive paperwork. This may include providing complete copies of tax returns, as well as W2s and 1099s.
It is important for borrowers to consider these additional aspects when looking for a jumbo loan. Borrowers have to fulfill these minimum standards to qualify. Out of all, maintaining a minimum credit score is perhaps the most important.
What are the High balance loan limit guidelines for 2023?
There are high balance loan limit guidelines for 2023. Governmental agencies, including the Federal Housing Finance Agency (FHFA) establish these boundaries. The limits can vary based on the location of the property. The high balance loan limit guidelines for 2023 are that the baseline high balance loan limit is $726, 200 and for high-cost areas, it is $1,089,300. In 2021, the baseline conforming loan limit was lower by $177,950, and in 2022, it was lower by $79,000.
What are the High balance loan limit restrictions for 2023?
The following are the restrictions for high balance loans in 2023:
- The property must be situated in a high-cost area.
- The loan amount cannot exceed the high-cost area loan limit.
- Borrowers need to have a favorable credit score.
- A minimum down payment of 3% is required.
Furthermore, lenders may have additional requirements. They can differ from one institution to another. These might include a higher credit score or a larger down payment.
When considering a high balance loan, it is crucial to consult with a lender. This is important so that you can discuss your specific circumstances. You must understand the eligibility criteria before you take any decision. Sort out your queries with your lender.
Here are some other limitations that may be applicable to high balance loans:
- High balance loans may carry a higher interest rate compared to conforming loans.
- The repayment term for high balance loans may be shorter.
- Borrowers might be obligated to pay private mortgage insurance (PMI).
Carefully evaluate the advantages and disadvantages of high balance loans. You must do this before making a decision that suits your needs.
Contact the Cain Mortgage Team Today for all your home loan needs.