Bay Area Real Estate Conforming Loan Limit Increase 2023

Bay Area Real Estate Conforming Loan Limit Increase 2023

Conforming loan limits are an essential topic to understand, especially here in the San Francisco Bay area. Today, let’s talk about the increase in these limits and everything else you might need to know about them.

What are conforming loans?

What is a conforming loan? 

Simply, it’s a mortgage that is going to be purchased after it’s closed on the secondary market by Fannie Mae and Freddie Mac and rolled into some kind of security. What’s more important to know is that there are limits on how large those loans can be.

New national conforming loan limits for 2023

Nationally in 2022, the loan limits were about $647,200. However, in 2023, they are increasing to $726,200. That is a significant increase in our market.

Regardless of where you live, you’re going to feel the market’s adjustment to this bump. What is significant here locally, though, is that that limit will increase more significantly in what are called high-cost areas. These high-cost areas are places where 115% of the local median home value exceeds the baseline conforming loan limit.

New conforming loan limits in California for 2023

In 2022, the loan limit for these high-cost areas was $970,800. This will now go up to $1,089,300 in 2023. That’s 50% more than the national limit. 

These limits are determined county by county. Take a look at this map to see if your county qualifies under the standard limit or the high-balance limit.

Conforming loans vs. Jumbo loans

For clarity, we’re talking about conforming loans which is different from a jumbo loan.

A jumbo loan, on the other hand, is any loan that falls above the limits of the conforming loans. In addition, traditionally jumbo loans are harder to qualify for because they require higher credit scores for the borrowers, lower debt-to-income ratios, and more reserves.

Sometimes, it can be tough for borrowers who are trying to qualify for a jumbo loan to hit those standards. Whereas for conforming loans, the standards aren’t quite as strict. They are a bit more loose on credit scores, debt-to-income ratios, and reserve requirements.

Remember that when you’re looking at interest rates, you have to know if you’re looking at a jumbo interest rate or a conforming interest rate. That’s because the underlying criteria—the risk that the lenders take for lending you the money—is different. Therefore, that interest rate is going to fluctuate based on these lender requirements.

New maximum home purchase prices with the new conforming loan limits

With the Bay Area conforming loan limit being moved up, we’ll see some interesting changes in the market. One of the changes has to do with total purchase price. With the new limit, borrowers can qualify for a total purchase price of about $1.21 million with just 10% down. Or, you can even get up as high as $1.361 million if you put down the full 20% and remain within the conforming loan limit.

Locally, that will broaden the price point at which buyers will be able to transact. That’s because, in general, anywhere in Alameda County, Contra Costa County, and beyond, right around that $1.2–$1.25 million price point is where it starts to shift from starter home inventory into the next tier up.

The question on what size of home to purchase is where a lot of people waver. It becomes a question of, “Do I stick with the 2BD/1BA or the 2BD/2BA with the small lot?” “Or can I push a little bit more and get myself up into the $1.3–$1.35 million world and get that third or fourth bedroom or that larger lot or the view?” With the new loan limit, you will now have the ability to potentially push into the larger home. Also, you can now potentially look at jumbo versus conforming, whereas you didn’t have that option prior to this change.

Our prediction for 2023

It’s going to be really interesting to see how this plays out here locally in Alameda County. We predict that it’s going to allow buyers who are right at that price point to expand their playing field. This is especially true for people either looking for their starter home or maybe their next-level home. It will give them more options and may allow them to purchase a slightly larger home than they could with a conforming loan.

One quick piece of advice? These limits become even stricter as you move into two-, three-, and four-unit properties. If you want to do a house hack, where you purchase a duplex or triplex and live in one unit while renting out the others, you should consider this now more than ever. 

WE hope our update on 2023 conforming loan limits increase has helped you.

If we can give you more context on the process of buying or selling your home, please do not hesitate to reach out. Our information is below. 

Here’s to all your success!

Bay Area Real Estate Conforming Loan Limit Increase 2023

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