A recent announcement from the Federal Housing Finance Agency (FHFA) stated that both Fannie Mae and Freddie Mac are set to increase the maximum limits of government-backed loans next year.

Based on the announcement made on Tuesday, November 29th, the maximum loan limit has been set to $1,089,300 for high-cost areas, a 150% increase on the limit set for 2022. Likewise, the baseline conforming loan limit will be set to $726,200, $79,000 higher than the $647,200 limit imposed for this year.

Any mortgages over the aforementioned loan limits will be considered non-conforming mortgages and, as such, will come with higher interest rates.

The announcement has been welcomed eagerly by homebuyers throughout the country, particularly those opting for homes in high-cost areas who now need to deal with non-conforming mortgages for even the simplest houses.

According to Melissa Cohn, regional vice president for William Raveis Mortgage, these increased loan limits will help an even greater number of potential homebuyers to avail of Fannie Mae or Freddie Mac financing.

Why the Increase?

Industry watchers will note that, while substantial, the increases in loan limits for next year are not as large as those imposed in 2022. This is mostly because of a sustained decrease in the growth of home prices in the United States.

It should be noted at this point that the increase for 2022 is, historically, the largest percentage and dollar increase since 1980.

According to FHFA supervisory economist William Doerner, there has been a marked and widespread deceleration in the growth of US home prices. Around a third of all states and metropolitan areas have registered less than 10% in terms of growth throughout this year.

A Cause for Concern

However, not everyone believes that these increased loan limits will be advantageous in the long run.

The Housing Policy Council (HPC,) for example, opines that increased limits may make even simple homes less affordable to the greater market. 

Made up of mortgage lenders, servicers, insurers, as well as data companies focused on the housing sector, the HPC recently issued a statement where it explained how larger loans backed by taxpayers’ money are more like a subsidy that results in marginally lower mortgage rates. 

Given these decreased rates, people will want to buy homes that may be beyond the reach of their budgets; in which case, increased loan limits will only make any ongoing affordability issues in the housing market worse.