Conforming and Non-Conforming Loan Limits of Conventional Home Loans

Updated: December 28, 2023

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When you're thinking about buying a home, you'll likely need a mortgage to help cover the cost. Conventional loans are a popular choice of mortgage. They offer flexibility in terms, competitive interest rates and don't require insurance premiums if you can make a sizable down payment. These loans can be further categorized into conforming and non-conforming types, each with its own set of loan limits.

Loan limits are the maximum amount you can borrow, and they vary based on whether the loan is conforming or non-conforming. Understanding these intricacies is important if you’re considering a mortgage. It can help you determine how much house you can afford, and may also affect the terms of your loan, including the interest rate. By understanding the 2023 loan limits for conforming and non-conforming conventional loans, you'll be better equipped to make smarter choices about your mortgage options.

What Are Conventional Loans?

Before diving into the details like types and loan limits, first understand what a conventional loan is. You'll be able to make informed decisions, particularly when comparing it with other options like FHA and VA loans. A conventional loan is a mortgage type not insured by any government agency. Instead, it's backed by private lenders and follows the guidelines set by entities like Fannie Mae and Freddie Mac.

How does a conventional loan differ from other types like FHA and VA loans? With FHA loans, you're required to pay mortgage insurance regardless of your down payment size, which isn't the case with conventional loans. If you can put down at least 20%, you can skip the mortgage insurance altogether. VA loans are designed exclusively for veterans and often require no down payment. By contrast, conventional loans are available to the broader public and usually require a down payment, although it can be as low as 3%.

Benefits and Requirements of Conventional Loans

Conventional loans offer several benefits that make them attractive for borrowers. For starters, they give you the flexibility to choose between fixed and adjustable interest rates, allowing you to tailor your loan to your financial situation. Additionally, they come with higher loan limits compared with their FHA counterparts, providing more borrowing options for those looking at pricier homes. Lastly, if you're able to make a down payment of at least 20%, you can completely bypass the extra cost of private mortgage insurance, which can amount to significant savings over the life of the loan.

While these benefits make conventional loans appealing, there are specific requirements you'll need to meet to qualify:

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    Credit Score

    A higher credit score not only increases your likelihood of approval but can also secure you a more favorable interest rate. Lenders look at your credit history as an indicator of your ability to repay the loan.

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    Your income level assures lenders that you can manage your monthly mortgage payments. A stable income history and a reasonable debt-to-income ratio are factors in loan approval.

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    Down Payment

    The amount you can put down upfront directly impacts your loan terms. A larger down payment often results in better rates and the ability to avoid mortgage insurance.

A good understanding of how conventional loans work can put you in a strong position to capitalize on the benefits that they offer. It can help you make more informed and beneficial decisions.

Understanding Loan Limits

Loan limits are the maximum amount you can borrow for a mortgage under specific guidelines. For conventional loans, these are often set by Fannie Mae and Freddie Mac, two agencies that back most conventional mortgages. These limits get updated annually to reflect changes in home prices. Different areas have different housing costs, so loan limits can vary depending on where you're looking to buy. Knowing these limits for your area helps you understand what homes are within your reach.

Loan limits also affect your loan terms and eligibility. If you borrow within these limits, you'll likely get better interest rates. Going over could make the loan more expensive or even out of reach. That's why it's important to stay updated with the latest information. Being aware of the conventional loan limits for 2023 can help you plan better and broaden your housing choices, ensuring you make the most out of your mortgage options.

What Is a Conforming Loan?

A conforming loan is a type of mortgage that falls within the loan limits set by Fannie Mae and Freddie Mac, two government-sponsored entities that buy and secure mortgages. When these back a loan, a lender is more protected if the borrower fails to pay. That makes them less risky for lenders. Understanding the role of Fannie Mae and Freddie Mac can help you see why conforming loans often come with better terms and being aware of what a conforming loan is and how it differs from a non-conforming loan can guide you in making a choice that aligns with your financial goals.

Conforming Loan Limits

Conforming loan limits are set guidelines on how much you can borrow for a mortgage and still qualify for a conforming loan. Knowing these can work to your advantage. For 2023, the conforming loan limits are $726,200 for most states and $1,089,300 for high-cost areas. Check out the table below for more detailed information:

Contiguous States, District of Columbia and Puerto Rico
Alaska, Guam, Hawaii and the U.S. Virgin Islands













Source: Fannie Mae

Let's consider a practical example. Say you're looking to buy a home in a state with the standard conforming loan limit of $726,200. If the home you're interested in is priced at $750,000, you could either look for a less expensive home or go for a non-conforming loan. But remember, a non-conforming loan might come with a higher interest rate.

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In the context of conventional loans and their limits, "1-unit dwelling" typically refers to a single-family home. It’s a standard home built on a single lot without any shared walls, floors or ceilings with other residential units.

In mortgages and loan limits, it's important to specify the type of dwelling — be it 1-unit, 2-unit (duplex), 3-unit (triplex) or 4-unit (fourplex) — because loan limits can vary based on the type of property. Generally, loan limits are higher for multi-unit properties compared with 1-unit dwellings.

Understanding the type of dwelling you're interested in can guide you in determining which loan limits apply to your situation. It will also influence the mortgage rates, down payment requirements and other terms of your loan.

High-Cost vs. Low-Cost Areas

In the mortgage world, these terms refer to the average housing costs in different regions. High-cost areas are typically places where real estate is more expensive — think cities like San Francisco or New York. In these areas, the conforming loan limits are adjusted upward because the average home price is higher. By contrast, low-cost areas are places where you can generally buy property without breaking the bank. Here, the conforming loan limits are closer to the baseline figure of $726,200 for 2023.

The Federal Housing Finance Agency (FHFA) reviews and sets these limits annually, taking into account fluctuations in home prices. They look at comprehensive housing price reports and then adjust the loan limits accordingly, making sure they're in line with current market conditions. Knowing whether you're buying in a high-cost or low-cost area directly influences your mortgage terms, your approval speed and your long-term financial planning. Here's how:

  • Economic Efficiency: Being aware of the loan limits for your specific area ensures you're not overborrowing, which is crucial for your long-term financial health.

  • Streamlined Process: If you're applying for a mortgage and you already know the conforming loan limits, you can expedite the application process. Lenders are generally quicker to approve loans that stick to these guidelines.

  • Future Financial Planning: You can better plan your long-term financial obligations, like how much you'll owe in monthly payments over the life of the loan.

Knowing the conforming loan limits for your area allows you to make choices that work to your financial advantage. It helps you secure a mortgage that not only meets your needs but also optimizes your financial health.

What Is a Non-Conforming Loan?

A non-conforming loan is a mortgage that doesn't meet the guidelines set by Fannie Mae and Freddie Mac. Understanding the ins and outs of non-conforming loans can open doors for you, especially if you're eyeing properties that exceed conforming loan limits. There are many reasons borrowers would go for a non-conforming loan. These include the following:

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    Higher Loan Amounts

    If you're in the market for a luxury home or a property in a particularly expensive area, a non-conforming loan lets you borrow more than the conforming loan limits.

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    Flexible Terms

    These loans offer a wider variety of repayment options and can be tailored to fit your financial situation.

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    Unique Properties

    If you're interested in a non-traditional property that lenders view as a higher risk, like a log home, a non-conforming loan might be your only option.

However, non-conforming loans come with their own set of challenges. You'll often face higher interest rates compared with conforming loans. It could mean significantly higher payments over the life of the loan, which could strain your finances. You'll also need a stellar credit score and a sizable down payment, as lenders view these loans as riskier. Additional costs can also creep in, such as higher fees or insurance premiums, making it crucial to read the fine print.

Non-conforming loans are suitable for exclusive or unique real estate ventures because they open doors to possibilities that might be closed off with conventional loan options. However, do your homework to fully understand the financial commitments and potential higher costs involved.

Types of Non-Conforming Loans

Understanding the different types of non-conforming loans can be a game-changer when navigating your mortgage options. Not all non-conforming loans are created equal, and the right one for you will depend on your individual circumstances, goals and needs. With a little knowledge, you can tailor your borrowing strategy to fit your situation. Here are some options:

  • Jumbo Loans: These are loans that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. Ideal for purchasing high-value homes, they usually come with stricter qualifications and potentially higher interest rates.

  • Non-Qualifying Mortgages (NQMs): These loans don't meet the traditional lending standards set by the federal government. They can be a good option for borrowers with inconsistent income streams or non-traditional debt-to-income ratios.

  • Portfolio Loans: Offered by lenders who keep the loans on their own books rather than selling them off, these loans often have more flexible qualification criteria. They are ideal for borrowers who may not meet standard lending criteria but have strong financial profiles otherwise.

  • Investment Property Loans: These are tailored for purchasing rental properties and usually require a larger down payment. They offer a way to diversify your investment portfolio but often come with higher interest rates.

  • Fix-and-Flip Loans: Designed for short-term real estate investments, these loans cover the cost of purchasing and renovating a property. They're geared towards real estate investors looking to sell or refinance quickly.

Non-conforming loans offer a wide array of options, allowing borrowers to find a loan type that closely matches their financial situation and goals. However, be prepared for generally stricter qualification criteria, which might include higher down payments, better credit scores and detailed financial documentation.

Non-Conforming Loan Limits

With non-conforming conventional loans, there's no set-in-stone loan limit like with conforming loans. Lenders set these limits based on their own risk assessment, which usually involves a close look at your financial picture — think credit score, down payment and debt-to-income ratio. The sky's not exactly the limit, but you do get more wiggle room.

Going beyond conforming loan limits might seem like a great way to buy that dream home, but it does come with its own set of considerations. Higher loan amounts often mean higher interest rates and a larger down payment requirement. So, while a non-conforming loan can offer you more borrowing power, your finances need to be robust enough to handle the bigger commitment.

Frequently Asked Questions on Conforming and Non-Conforming Loan Limits

Not all borrowers are familiar with the concepts of conforming and non-conforming loan limits. To provide additional information, we addressed some commonly asked questions, allowing you to make informed choices on your mortgage journey.

What is a conventional loan?
What are loan limits in the context of mortgages?
What's the difference between a conforming and non-conforming loan?
What’s the loan limit for conforming loans?
What are non-conforming loan limits?
How often do conventional loan limits change?
Are conforming loan limits the same in every state?
Do conforming loan limits apply to multi-family homes?
Can I get a loan that exceeds the conforming loan limits?
How do loan limits impact my mortgage rates?

About Christopher Boston

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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.