The Perks of a Higher Conforming Loan Limit for NYC Buyers

Recently, the Federal Housing Finance Agency (FHFA) announced they’re raising the conforming loan limit in high-cost areas from $970,800 to $1,089,300 in 2023. These high-cost areas are markets where competition is steep and prices are high, and the conforming loan limit has been adjusted to reflect their changing economy. It’s easy to understand why New York City is considered a high-cost area, since most new developments frequently come with a price tag at or above a million. That’s why higher conforming loan limits are great news for nearly every New York buyer — especially those who are on the cusp of being able to swap their home for a pricier one.

You may be asking yourself, what’s a conforming loan limit, and why should I care that it’s higher? We’re breaking down the facts you need to know to understand this change in the real estate and homeownership industry and how it can work in your favor when financing your home. Let’s dig in.

What’s a conforming loan limit?

Most loans are conventional loans, which fall into two categories: conforming loans and non-conforming loans, a.k.a jumbo loans. We’ll get more into jumbo loans later but for now, let’s focus on what it means to borrow a conforming loan.

Conforming loans follow requirements set by government-backed agencies Fannie Mae and Freddie Mac. On top of deciding eligibility requirements, the agencies also set the maximum cap on how much anyone can borrow for a single-unit home. These limits allow those who are qualified to get a mortgage that works in their area — in some regions the conforming loan limit is lower or higher than others depending on what the wages and prices and overall economy is like in that area. New York City is considered a high-cost market, with prices reaching well over the national median price and most buyers earning a higher income than other states as well. Other high-cost areas include San Fransisco and Hawaii.

What’s the new conforming loan limit for 2023?

In most of the United States, the 2023 conforming loan limit for a one-unit property is $726,200, which is $79,000 more than the conforming loan limit in 2022, which was $647,200. In high-cost markets like New York City, the new limit is $1,089,300, which is over the one-million-dollar mark for the first time ever.

What if I don’t need to borrow up to the limit?

That’s totally fine! If you’re a lucky buyer whose home requires a mortgage that isn’t anywhere near the conforming loan limit for your region, this news may make no difference to you. Similarly, if you’re buying a 2-unit, 3-unit, or 4-unit home, you’ll be able to borrow up to a much higher limit.

Not sure what your conforming loan limit currently is? There are a couple of government-owned tools you can use to find it. One is this map from the Federal Housing Finance Agency (be sure to zoom in) and the other is the Department of Housing and Urban Development’s tool for looking up your county and its most recent loan limit.

How to borrow more than the conforming loan limit allows

Remember those jumbo loans we were talking about? Well, if the property you’re looking to purchase requires you to borrow more than your local conforming loan limit allows, jumbo loans are going to be your best bet. These non-conforming loans aren’t regulated by Fannie Mae and Freddie Mac, so they often come with even more stringent eligibility requirements set by the lender themselves to make sure they’re taking as little financial risk as possible. They also come with higher interest rates and higher down payment requirements than conforming loan limits do. This is to help cushion the risk even more and make it as unlikely as possible that a borrower will default on their payments.

No matter which route you take, you’ll need to show documentation of your financial records over the last couple of years. From your credit score and debt-to-income ratio to your employment history and tax returns. For a jumbo loan, you’re likely to need a high credit score in the 700s and a down payment that’s 20% of your purchase price or more.

The perks of a higher conforming loan limit for NYC buyers

An easier trade-up

Most homeowners probably want to be able to work their way up the property ladder, not down it. When you’re ready for your next home there’s a good chance that using the profit from your sale will help you afford to trade up, but also require a larger loan. Now, today’s higher conforming loan limit allows you that mobility.

A better match for today’s prices

When buyers can borrow over $1 million for their home, their options open up and the chances of finding the right space are greatly boosted. Anyone who’s been watching the market since its pandemic-era boom will know that prices have only been rocketing higher and higher while wages, inflation, and employment have had their own ups and downs. Now that the borrowing limit on conforming loans better reflects today’s prices, those that can afford to buy a home have a wider range of options.

More access to fixed-rate loans

Conventional loans come with fixed interest rates, which stay the same over the course of your loan term. Adjustable-rate mortgages, also known as adjustable-rate financing, are often marketed to buyers who are going after expensive properties and want to choose a lower interest rate upfront. The problem is, once it comes time for the interest rate to adjust (when that happens depends on which specific lender and loan, but many adjust after 5 or 10 years) the monthly payment will become much more expensive and force the homeowners who can’t keep up to sell or refinance. Now that conforming loan limits are higher, getting a larger loan won’t necessarily mean you need an adjustable-rate mortgage to go with it.

Less tax documentation required

Loans that are backed by Freddie Mac only require one year of tax returns for those who are self-employed for at least five years. Jumbo loans, on the other hand, require two years of tax returns, along with more stringent financial requirements. Considering New York City had a much tougher economy in 2021 than it did in 2022, showing only one year of tax returns can help you put your best foot forward with a lender and stretch your money farther with a larger conforming loan.

What to keep in mind about conforming loan limits

A higher conforming loan limit can be a double-edged sword in some cases. While it allows some buyers to stretch their dollars further for their new home, it also leaves them more at risk if their situation changes financially. If their original monthly loan payment goes from only 30% of their income to 50%, it may force them to take an action like selling or refinancing that they’re not financially ready for. Always be sure to slow down, consider all your options, and do your research about any home loan before signing on.

It’s also important to remember what living in New York City is like. Taxes, especially property taxes, are high. Maintenance and co-op or condo board fees can be high. Renovations are complex and often require a big budget. Even the necessary act of buying groceries is more expensive than usual in this city. Before you take advantage of the higher conforming loan limit, be sure that you’ll be able to afford it for a long time along with everything else in your life. It’s not just the loan size that matters, but the market, interest rates, and your own personal financial situation that will decide how much you can and should borrow safely.

How a higher conforming loan limit can help you buy a new development in NYC

A higher conforming loan limit helps every New York City home buyer, but it’s especially helpful to those who needed to borrow at the higher end of 2022’s limit of $647,200. Prices have risen quickly as the post-pandemic economy shifts its balance, and finally, conforming loan limits are catching up. But buying a home is going to be a big investment no matter what, so make sure you’re making a sound financial decision with help from a NewDevRev agent and real estate attorney.

Interested in a new development? The NewDevRev team is here to connect you with properties that meet your needs and goals and work with today’s higher conforming loan limits. Reach out and we’ll take it from there.