The maximum size of so-called conforming mortgages on single-family homes will rise by about 2 percent to $191,250 on Jan. 1.
The limit applies to mortgages originated by lenders conforming to rules set by the country's two quasigovernmental mortgage buyers, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
Fannie Mae and Freddie Mac pool mortgages purchased from lenders into securities, which they then sell to investors. The ability to liquidate long-term mortgage assets through this process typically results in an interest rate break to borrowers of at least a half percentage point.
The maximum loan amount is adjusted annually based on a congressionally mandated formula that measures changes in the national average sales price of homes.
The increase comes as something of a surprise, considering the slumping real estate market in many parts of the country.
The formula, however, relies only on sales in a single month -- October -- as the year-over-year benchmark, said William Maloni, Fannie Mae's senior vice president of policy and public affairs.
The new figure, up from this year's $187,450 maximum, does not reflect what is happening this year as much as it reveals an "aberration" in October 1989 sales, which were flat in an otherwise rising market, Maloni said.
The increase will help buyers of more expensive homes here, but, Maloni noted, the average Fannie Mae loan in the District of Columbia during the first nine months of this year was only $89,000.
The 1991 conforming loan limit for second mortgages will climb to $95,625.