Mortgage Limit Up at Fannie Mae, Freddie Mac
Fannie Mae and Freddie Mac raised the limit on the size of single-family home mortgages they buy from banks by 9.3% to $300,700, opening up lower-cost home financing to more people.
The new loan ceiling, up from $275,000, is in line with the increase in the average home price for the 12 months ended in October, according to the Federal Housing Finance Board. Fannie Mae’s and Freddie Mac’s government charters require them to base the loan maximum on the federal housing index.
The companies provide money for U.S. housing by buying loans from banks and other lenders, enabling those banks to make more loans. Mortgages that can be bought by Fannie Mae and Freddie Mac typically have a rate about 0.30 percentage points lower than loans they can’t buy. Freddie Mac estimates an additional 250,000 families will be eligible for the lower-cost loans when the limit goes into effect on Jan. 1.
“It will make homes more affordable, especially for first-time home buyers,” said David Lereah, chief economist for the National Assn. of Realtors.
About 353,700 sales in the state next year will fall into the price range implied by the higher loan limits, an increase of 23,500 homes over the 2001 loan limits, said California Assn. of Realtors President Robert Bailey.
The $25,700 increase translates into an additional 20,200 California households able to take advantage of savings provided by having a Fannie Mae or Freddie Mac mortgage, Bailey said.
An additional 9,200 households in the five-county Southern California region will benefit from the increased loan limits, according to economists for the California Assn. of Realtors. The statistics do not include refinance activity.
Based on Tuesday’s mortgage rates, a borrower with a $300,000 loan would save more than $700 a year in interest payments with a Fannie Mae or Freddie Mac loan compared with one not funded by the companies. That amounts to $21,890 less in interest costs over the life of a 30-year loan.
Tuesday’s rise in the limit was the largest annual increase since at least 1990, when the cap was $187,450.
