Federal Government Increases The Loan Limit Above $1 Million For The First Time

The federal government is poised to allow mortgages of $1 million or more for the first time, even as the mortgage market has cooled recently, reflecting the sharp rise in home prices across the country in recent years.

The Federal Housing Finance Agency said Tuesday that the maximum amount of mortgage loans for homes backed by Fannie Mae and Freddie Mac in upscale markets such as California and parts of New York will rise to $1,089,300 this year from $970,800. 

FHFA said most loan limits nationwide will increase from $647,200 to $726,200 in 2022. 

Ascending Green Triangle and Freddie Mac FMCC -0.76% decrease; A red triangle pointing down. By law, loan limits are calculated annually using a formula that takes into account the average home price.

The increase will make it easier and cheaper for borrowers to buy single-family homes, especially those that are close to their limit. 

Higher limits could also spark debate about how big government-backed mortgages are. 

Bridge mortgages, called qualifying loans, generally have lower closing costs and may require a smaller down payment than bridge mortgages, also known as jumbo mortgages.

Whatever relief higher lines of credit provide to homebuyers, it can’t make up for the high-interest rates and home prices that have cooled the housing market. 

According to the National Association of Realtors, existing home sales fell in the nine months through October.

Mortgage rates have risen sharply this year, reaching 7% for the first time in 20 years. 

Many potential homebuyers either don’t qualify for a loan or have had to cut their purchase budget after a higher interest rate increases their estimated monthly expenses by hundreds of dollars.

According to the Association of Realtors, the average sales price of single-family homes rose 8.6% year-over-year in the third quarter. Prices have risen much faster in recent years as housing demand has increased during the pandemic.

According to the FHFA, out of more than 3,000 counties in the United States, more than 100 counties, including New Jersey, Maryland, Virginia, and Utah, are designated as high-cost markets.