In response to ongoing increases in home prices, the Federal Housing Finance Agency (FHFA) announced on Tuesday that it will raise the conforming loan limits for mortgages purchased by Freddie Mac and Fannie Mae by 5.2% in 2025, USA Today and FOX Business report.
The new loan limit for a one-unit home will rise to $806,500, up nearly $40,000 from the 2024 cap.
This adjustment reflects the continued rise in home prices across the United States, with the FHFA noting that the average home price increased by 5.21% from the third quarter of 2023 to the same period in 2024. As a result, the conforming loan limit, which determines the maximum loan amount that can be purchased by Fannie Mae and Freddie Mac, will be higher to accommodate these price changes.
For high-cost areas, where 115% of the local median home value exceeds the baseline loan limit, the cap will be even higher. In such regions, the loan limit for a single-unit home will rise to $1,209,750, reflecting a 150% increase over the baseline amount.
Freddie Mac and Fannie Mae, government-sponsored enterprises, do not lend money directly but buy loans from financial institutions like banks. This helps provide liquidity to the mortgage market, making it easier for lenders to offer loans to more borrowers. As such, the annual adjustment to conforming loan limits is a routine measure that aligns with changes in the housing market.
The increase in loan limits is expected to provide some relief in a housing market grappling with affordability challenges.
“Having those loan limits raised helps a lot more people,” said David Horvath, a senior mortgage loan officer at Meridian Bank.
He noted that mortgages backed by Fannie Mae and Freddie Mac offer more flexibility on things like down payments and credit profiles compared to jumbo mortgages, which are not eligible for purchase by these entities.
However, experts point out that the increase in loan limits will have a limited impact on overall housing affordability. While loan limits are rising, home prices in many areas continue to climb, exacerbating the affordability crisis.
“A typical mortgage payment, excluding taxes and insurance, is now 82% higher than before the pandemic,” said Selma Hepp, chief economist for CoreLogic, a real estate data provider.
Despite these challenges, some analysts predict that home price growth may slow in 2025, as elevated mortgage rates could dampen demand. Nevertheless, with many Americans still grappling with high prices and rising interest rates, the increase in conforming loan limits may provide some relief for borrowers in certain markets.
Housing advocates, however, argue that increasing loan limits alone will not solve the broader issue of housing affordability. Molly Goodman, co-founder of Abundant Housing Massachusetts, emphasized the need for more comprehensive solutions to address the underlying supply issues that drive up prices.
“We still need financial products that can serve the market, but we need to recognize that this is not sustainable,” she said.
