Fannie Mae and Freddie Mac are government sponsored enterprises whose shared goal is to provide affordable loans. They are required by law to adhere to the “conforming loan limit,” which sets a financial cap on the amount at which they can purchase single-family mortgages. Loan balances above a specific amount, also known as “jumbo loans,” are off-limits to these companies.
It has been close to 11 years since these companies were legally allowed to make any adjustments to their loan limits.
In 2008, the Housing and Economic Recovery Act was enacted and established a baseline loan limit of $417,000. The act also requires that the limit be adjusted yearly in order to properly reflect changes in the national average home price.
Declining home prices led to HERA stating that the baseline limit cannot rise until average home prices in the U.S. return to their pre-decline level. In 2016, however, average U.S. home prices have returned to their pre-crisis level, allowing the maximum loan limit for companies like Freddie Mac and Fannie may to increase from $417,000 to $424,100.
Higher-cost areas will be seeing an even greater increase to their limit – some ceilings rising from $625,000 to $636,000, an increase of over $10,000. The national “floor” will also be seeing increases in a few thousands of dollars.
FHA operates a little differently than Freddie Mac and Fannie Mae, and their loan limits are solely based upon the median income of the U.S.
These new loan limits are effective for conforming mortgages assigned on/after January 1, 2017 and will be effective throughout the entire year.
These changes may also increase the loan limits on VA and Rural Housing guaranteed loans.
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