Of the twists and turns our real estate market has been taking of late, folks looking to buy a new home will have been encouraged by the rise in the conforming loan limit (CLL), taking it above $1 million for the first time.
If you’re not familiar with a conforming loan, here’s the deal: It’s a mortgage that meets the value limit set by the Federal Housing Finance Agency (FHFA) and underpins the funding criteria of Freddie Mac and Fannie Mae.
House prices increased 12.21%, on average, between the third quarters of 2021 and 2022 which means the 2023 baseline CLL will increase by the same percentage.
In 2022, the limit for a conforming loan was $642,000. It was slightly higher in more expensive areas. From January, 2023, the CLL will be set at more than $1 million for those costly markets and $726,200 for the rest of America.
The United States has more than 3,000 counties or county-equivalent jurisdictions. In any given year, roughly 100 to 200 of them qualify for high-cost limit values that exceed the baseline limit value.
Special statutory provisions establish different loan limits for Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In these areas, the baseline loan limit in 2023 will be $1,089,300 for one-unit properties.
The annual FHFA review and increase in the loan ceiling is good news for borrowers who can potentially access more credit at lower interest rates to break into the market or move up the property ladder. There is enormous pent-up demand on both those fronts.
It’s also some good news for buyers who have been faced with six Federal Reserve rate hikes in 2022, the last a whopping 0.75% to 4%.
If you’re saving for your first or next home, now is the time to double down on your efforts.
The Fed has suggested it will slow the pace of rate rises, which means a regular real estate market may not be so far away.