Fannie Mae and Freddie Mac raised the limit on the size of single-family home mortgages they buy from banks by 7.3 percent to $322,700 effective Jan. 1, 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.
Mortgages bought by Fannie Mae and Freddie Mac typically have a rate about 0.30 to 0.75 percentage points lower than loans they are not eligible to buy.
Loans that fall within the companies' purchase limits are called conforming loans and are cheaper for consumers because banks and thrifts can readily sell them to Fannie Mae and Freddie Mac or swap them for mortgage-backed securities. Mortgages larger than the limits are known as jumbo loans.
Fannie Mae and Freddie Mac will also boost the mortgage limit on two-family properties to $413,100 from $384,900, for three-family properties to $499,300 from $465,200, and for four-family homes to $620,500 from $578,150.