In a move designed to make home ownership accessible to a greater number of Americans, mortgage companies Fannie Mae and Freddie Mac will raise the limits of government-backed loans to a record level for 2023, with the maximum limit pushing above $1 million for expensive areas of the country.
The Federal Housing Finance Agency (FHFA) said in a Nov. 29 announcement that in most of the United States, the 2023 conforming loan limit (CLL) value for one-unit properties will be $726,200, up from $647,200 in 2022. The CLLs will be higher in all but two U.S. counties or county equivalents due to rising home values, the FHFA said.
In high-cost areas — those in which 115% of the local median home value exceeds the baseline CLL of $726,200 — the new ceiling for one-unit properties will be $1.09 million in 2023. That’s up from $970,800 this year, CNN reported.
Higher Limits Accord With Soaring Home Prices
The higher limits should give more borrowing power to a wider swath of the population — an important consideration in a year when U.S. home prices have hit record highs. Although average home prices have fallen back in recent months, and some analysts warn that the housing market could crash next year, prices are still up in double digits compared with last year.
Meanwhile, the cost of borrowing has also spiked, with current mortgage rates approaching 7% — their highest point in 20 years, according to the St. Louis Fed.
The increase in conforming loan limits should be happy news for those looking to buy a new home.
“These new, much higher numbers will enable more homebuyers to take advantage of Fannie Mae and Freddie Mac financing,” Melissa Cohn, regional vice president at William Raveis Mortgage, told CNN.
This is especially true in areas where pricey homes have pushed many borrowers into more expensive non-conforming or “jumbo” mortgages.
As CNN noted, Fannie and Freddie back about half of all U.S. mortgages, but they don’t lend money. Instead, they buy loans from lenders and sell them to investors, making the loans cheaper for lenders and more affordable for consumers.
When Fannie and Freddie categorize higher-balance loans as conforming, more homebuyers can qualify for loans. In contrast, non-conforming jumbo loans cost more and are harder to qualify for because they carry more risk.
Not everyone supports raising the conforming loan limit, however. Among the critics is the Housing Policy Council (HPC), a trade group made up of lenders and other mortgage companies and professionals. It argues that taxpayer-backed (and thus lower) mortgage rates will only encourage people to buy more expensive homes.
“Ultimately, such backing feeds the run-up in house prices, exacerbating the affordability challenges we face in today’s supply-constrained marketplace,” the HPC said in a statement.
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This article originally appeared on GOBankingRates.com: Fannie Mae & Freddie Mac To Increase Government-Backed Mortgages To Reach New High in 2023