More Loan Options for Homebuyers – Fannie Mae/Freddie Mac raise loan limits

Good news for homebuyers in a market that’s been cooling due to interest rate hikes.

As home prices have surged, buyers in some markets have encountered some challenges in qualifying for ‘conforming’ loans—those programs that feature lower interest rates and conform to standards set by two government-regulated companies, Fannie Mae and Freddie Mac.

In response, both companies announced that conforming loan limits for single-family homes will rise 16% from $359,650 to $417,000, the largest percentage bump in 25 years.

Conforming loans typically charge a quarter point less than alternative ‘jumbo’ loans—programs designed for larger loan amounts. In some parts of the country where even modest homes run $500K, borrowers would have been forced to buy jumbo loans, take out two smaller mortgages, or even purchase home equity loans, whose rates are tied to the prime rate (which has risen 1.75% since the end of 2004).

New loan limits go into effect January 1, 2006, but lenders will probably start offering bigger conforming loans before year-end. Higher loan limits now give new options for owners looking to refinance at fixed rates.

MSNBC has a nice article covering this. See also Fannie Mae’s press release.

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Add comment November 30th, 2005