2 Key Lenders Raise Home-Loan Limit to $275,000
Mortgage financial institutions Fannie Mae and Freddie Mac said Tuesday they will raise their single-family mortgage loan limit to $275,000, a move that will allow 150,000 home buyers nationwide to qualify for cheaper, conventional mortgages.
The change will be particularly helpful to buyers in high-priced areas of California, where the average home price has spiraled in recent years. In October, the median sale price of an existing, single-family home in California was $252,510, according to the California Assn. of Realtors.
The new loan limit--an 8.8% increase over the current maximum--will permit an additional 18,500 California families to take advantage of savings provided by having a Fannie Mae or Freddie Mac mortgage, according to the California Assn. of Realtors. Mortgages bought by Fannie Mae and Freddie Mac typically have a rate about 0.30 percentage point lower than loans they’re not eligible to buy.
The higher limit “more accurately reflects the cost of housing in California,” said Gary Thomas, president of the California real estate group.
Fannie Mae and Freddie Mac are government-sponsored enterprises created by Congress to buy home loans from banks and other lenders to make mortgage money plentiful. The companies, which are the largest suppliers of mortgage money in the country, are stockholder-owned, but because of their ties to the federal government, they are able to borrow at rates only slightly above government bonds.
Mortgages that fall within the companies’ purchase limits are called conforming loans and are cheaper for consumers because banks and thrifts can easily sell them to Fannie Mae and Freddie Mac, or swap them for mortgage-backed securities.
Under the new limit, a borrower with a $275,000 loan would save $804 annually in payments with a Fannie Mae or Freddie Mac mortgage. Over the life of a 30-year loan, the borrower would save about $24,000.
The increase in the limit is in line with the increase in the average home price to $200,800 for the 12 months ended in October, according to the Federal Housing Finance Board. The companies’ government charters require them to base their loan limits on the federal housing index.
The companies will also boost the mortgage limit on two-family properties to $351,950 from $323,400; the limit for three-family properties will rise to $425,400 from $390,900; and for four-family homes to $528,700 from $485,800.
Fannie Mae shares rose $1.69 Tuesday to a record $80.06, and Freddie Mac rose 94 cents to $59.94, both on the NYSE.
