The Federal Housing Finance Agency (FHFA) is probably an agency you’ve never heard of, even though they play a role in regulations around housing and mortgages. However, they’re in the news a lot right now because they recently announced the 2023 mortgage loan limits for mortgages acquired by Fannie Mae and Freddie Mac next year. What does that mean exactly, and why should you care? Let’s start with what CLLs are. What are Conforming Loan Limit Values? The conforming loan limit is the maximum dollar amount of a mortgage that Freddie Mac or Fannie Mae will guarantee. If a loan meets the criteria to be backed by the entities, it’s called a conforming loan. In 2008, the Housing and Economic Recovery Act (HERA) mandated that the CLL values adjust yearly to account for changing home values. To calculate the change, the FHFA will look at the October to October change in average house prices across the country. The 2022 CLL for most of the United States was $647,200, and for 2023 it will be $726,200. Note that your limits will be higher if you live in what’s deemed a high-cost area.
What Do CLLs Mean for You?
Fannie Mae and Freddie Mac back most mortgages in the United States. Most mortgages are conventional mortgages that require what you usually hear about A good credit score of at least 620 A decent debt-to-income ratio A 20% down payment or private mortgage insurance (PMI) Let’s say you – like most Americans – want to buy a home and choose to get a conventional mortgage, which is a conforming loan. However, if the value of your mortgage exceeds the CLL for your area, you are out of luck. Therefore, that loan would be considered a non-conforming jumbo loan. There are several other types of non-conforming loans as well. For example, VA Loans, FHA Loans, and USDA loans are also considered non-conforming.
Should You Get a Jumbo Loan?
If you want to buy a home that will require a larger mortgage than the 2023 CLL for your area, you will need to use a non-conforming loan such as a jumbo loan. That’s not a big deal; you just need to understand a few differences. For example, usually you will need a lower DTI ratio to qualify for a jumbo loan than if you were going after a conforming loan. The lender is taking on a more significant risk, so they want to see a lower DTI to help them feel assured that you can pay all your bills on time. A jumbo loan also generally requires a higher credit score. Instead of a minimum score of 620, you usually need a score of at least 700 to qualify for a jumbo loan. The good news is that a jumbo loan typically has similar interest rates to a conforming loan. So you don’t need to worry about paying a higher rate on your higher-than-CLL mortgage.
Even though the 2023 mortgage loan limits don’t affect everyone, they will impact some of our clients. If you think you will be affected, email us at info(at)rcghomeloans(dotted)com or call us at 702.850.2000. We’ll help you identify the CLL for your area and what type of loan is best for you. RCG Home Loans.