United States home prices are on fire. For the first time, the median asking price hit $300,000. Over the past year, home prices have increased by a healthy 7 percent.
With temperatures warming, home prices are expected to rise even more. The average family home is not the only group riding the wave. The supply of homes with a listing price of over $750,000 increased by 11 percent.
The surge in home values has a wide-ranging impact on the mortgage industry. For example, Freddie Mac and Fannie Mae loan limits are now expected to rise. Read on to learn more about these loan limits and why they are rising.
What Does Freddie Mac and Fannie Mae Do?
Freddie Mac and Fannie Mae are financial institutions established by the United States Congress. Their mission is to buy mortgages from banks and inject liquidity into the housing market.
With fresh capital from the government, mortgage lenders can enter into even more loan agreements with homebuyers. More loans and additional capital also drive mortgage rates lower. Another benefit is that these institutions provide the stability and confidence of the U.S. government.
Who Regulates Freddie Mac and Fannie Mae?
The U.S. Federal Housing Administration (FHA) oversees and regulates these two institutions. There are many different mortgage types, but FHA loans are amongst the most popular.
FHA loans only require a 3.5 percent down payment, which is one reason for its popularity. Some lenders require up to a 20 percent down payment.
The FHA also has more lenient credit requirements for applicants. This credit requirement ties in directly to the prior section, as Freddie Mac and Fannie Mae, purchase FHA mortgages.
What Are the Freddie Mac and Fannie Mae Loan Limits?
Due to rising home values, the FHA increased loan limits for the vast majority of mortgages. The increase applies to the vast majority of areas, however, there are a few regions where the limits are unchanged.
For starters, the loan limit ceiling increased to $726,525. Also, the limit for Home Equity Conversion Mortgages (HECM) rose to the same level. In addition, the floor increased to $314,827.
These changes apply to over 3,050 counties across the country. Only 47 counties in the United States were unaffected by the loan limit increases.
Another loan type receiving a boost are conforming loans. Their limits increased to $484,350. This increase represented a nearly 7 percent increase from the year prior.
This change is the third consecutive year in which FHA loan limits increased. With rising home values, a failure to act would have serious complications for the housing market. Unchanged limits would prevent many mortgage applicants from applying for FHA loans.
Wrapping It Up
Freddie Mac and Fannie Mae are critical to stability and affordability in the housing market. These two institutions purchase FHA loans from mortgage brokers, injecting liquidity into the market. It also lowers interest rates, which reduces monthly payments and makes home buying more affordable.
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