Limits on Home Loans Raised by 7.3%

Fannie Mae and Freddie Mac on Tuesday raised the limit on the size of single-family home mortgages they buy from banks by 7.3% to $322,700, widening the field of home buyers eligible for lower-cost financing.

The new loan ceiling, up from $300,700, matches the increase in the U.S. average home price in October from a year earlier, according to the Federal Housing Finance Board. The government charters for Fannie Mae and Freddie Mac require them to base annual increases in their maximum loan size on the October price increase.

“It will definitely spur more refinancing as people jump from higher cost jumbo loans” to mortgages that lenders can sell to Fannie Mae and Freddie Mac, said Kevin Jackson, a mortgage analyst at RBC Dain Rauscher Inc. in Chicago. “It helps the borrower save cash.”

Fannie Mae and its smaller rival, Freddie Mac, provide money to the housing market by buying loans from banks and other lenders, enabling those lenders to make more loans. The government-chartered companies make a profit by keeping some loans and earning interest on them, or by repackaging others as mortgage-backed securities that are sold to investors.

Freddie Mac estimates that an additional 250,000 households will be eligible for the lower cost loans when the new limit goes into effect Jan. 1.

Fannie Mae and Freddie Mac also will boost the mortgage limit on two-family properties to $413,100 from $384,900; the limit for three-family properties will rise to $499,300 from $465,200; and for four-family housing to $620,500 from $578,150.