Mortgage giants Fannie Mae and Freddie Mac will raise their government-backed loan caps to record levels through 2023, the Federal Housing Finance Agency announced Tuesday.
Despite a cooling property market in the face of soaring mortgage rates this year, home prices are still rising, with prices up 12.21% in the third quarter from a year ago, according to the FHFA. doing.
As a result, the 2023 compliant loan limit will be $726,200, an increase of $79,000 from this year’s limit of $647,200. In higher cost regions, the new loan limit will be $1,089,300, or up to 150% of the baseline loan limit. This year, the high cost area loan limit is $970,800.
Mortgages that exceed these loan limits are considered “nonconforming” or “jumbo” mortgages and typically carry higher interest rates.
Next year’s price increase won’t be as big as the 2022 price increase. This is largely due to slowing home price growth. His 2022 increase, which he increased by $98,950 from $548,250 in 2021, was the largest percentage increase and dollar increase since 1980.
“U.S. house price inflation has slowed significantly,” said William Doerner, supervising economist in the FHFA’s research and statistics division. “This slowdown is widespread, with annual growth below 10% in about a third of all state and metropolitan statistical areas.”
The increase is welcome news for homebuyers, especially those in high-price neighborhoods who have high jumbo mortgages for even modest homes.
said Melissa Cohn, Regional Vice President, William Raveis Mortgage.
But not everyone in the housing industry agrees that increasing restrictions is a good idea.
The Housing Policy Council, a trade association of mortgage lenders and servicers, insurers and technology and data companies, argues that raising loan limits could exacerbate the affordability crisis. House prices are rising much faster than household incomes, so taxpayers are being subsidized by helping with larger loans, resulting in slightly lower mortgage interest rates and making people more expensive. You will be able to purchase affordable housing.
“Ultimately, such support will help push home prices higher and exacerbate the affordability challenges facing today’s supply-constrained market,” HPC said in a statement.
Fannie Mae and Freddie Mac back about half of US mortgages, but they aren’t lenders. Instead, Freddie and Fanny buy loans from lenders and sell them to investors. This makes these loans cheaper for lenders, making credit available and relatively affordable for consumers.
The baseline loan limit is the maximum loan amount for the purchase of one unit, not the purchase price.
By classifying high-balance loans as suitable, more homebuyers can take advantage of loans that are typically cheaper, require a lower down payment, and can have a lower credit score. Jumbo loans are more expensive and harder to qualify for because they carry more risk.
The formula for the FHFA, which raises the limit each year, looks at how much house prices have increased in that year. The law sets maximum loan limits in high-cost areas as multiples of the median home price in the area, up to 150% of the baseline loan limit.
high cost city It includes areas such as San Francisco, Silicon Valley, New York City, Washington DC, and the city’s surrounding suburbs.
The FHFA does not allow credit limit reductions. When house prices fall, your loan limit stays the same as the previous year until the house price drop is “filled up”. For example, after the housing crash, the baseline loan limit he did not change in 2007 and remained at the same level until rising again in 2017.