Freddie Mac, Fannie Mae Will Buy Home Loans Valued Up to $806,500

A home stands for sale in a Brooklyn neighborhood with a limited supply of single family homes in New York on March 31, 2021. Spencer Platt/Getty Images

Freddie Mac and Fannie Mae can buy mortgages valued at higher amounts in 2025 to account for the jump in home prices over the past year.

The institutions are government-sponsored enterprises that buy mortgages from lenders and repackage them as mortgage-backed securities sold as investments. However, there are limits set to loans that can be bought, known as the conforming loan limit. The Federal Housing Finance Agency (FHFA), tasked with setting this threshold annually, announced on Nov. 26 that the limit for one-unit properties will be $806,500 from next year, up 5.2 percent from the current level.

The FHFA pointed out that home prices increased by 5.21 percent between Q3 2023, and Q3 2024. Hence, the agency decided to raise the conforming loan limit by the same percentage.

Mortgages within the limits set by the FHFA are called conforming loans, and these tend to be less costly and easier to acquire for buyers compared to others. In 2023, the conforming loan limit was $766,550.

The latest higher limit means that buyers can now purchase more expensive homes and still qualify for conforming loans provided the mortgage value does not exceed $806,500.

The new limit is applicable to most of the United States except in regions deemed to be “high-cost.”

Some counties in states like New Hampshire, Massachusetts, Tennessee, Colorado, Utah, Washington, New York, New Jersey, Florida, and California, will have limits ranging from $806,500 to just over $1.2 million.

In Hawaii, Alaska, U.S. Virgin Islands, and Guam, the limit for one-unit properties is set at 150 percent of $806,500, which comes to around $1.2 million.

Loans beyond the limits prescribed by the FHFA are known as jumbo loans and attract higher interest rates. Both Freddie Mac and Fannie Mae are prohibited from buying such loans.

The latest threshold increase “means that more mortgages will be bought by Fannie and Freddie, which will make it easier for home buyers to qualify for and close their loans,” the National Association of Home Builders said in a Nov. 26 statement.

“For home builders, it means their clients will find more mortgage options outside of the world of jumbo loans, and it could offer an opportunity for home builders to examine their pricing.”

Affordability Situation

The FHFA decided to raise loan limits for Freddie Mac and Fannie Mae mortgages amid surging home prices over the past years.

According to a report by real estate brokerage Redfin, U.S. housing costs have risen by more than 40 percent compared to the pre-pandemic period. “In much of the country, people earning under $50,000 cannot afford to buy a home,” it said.

“As of this summer, a household needs to earn $77,000 per year to afford the median-priced starter home.”

The FHFA recently pointed out that the housing market in the United States has seen year-over-year price gains for every single quarter since 2012.

In the third quarter of 2024, the pace of price growth slowed down, a trend that began in Q4, 2023, Anju Vajja, deputy director for FHFA’s Division of Research and Statistics, said in an FHFA statement on Nov. 26.

“While house prices continued to increase because housing demand outpaced the locked-in housing supply, elevated house prices and mortgage rates likely contributed to the slowdown in price growth,” she said.

Real estate marketplace Zillow is predicting the housing market to become more active next year, according to a Nov. 25 report. There would be “a bit of extra breathing room” for buyers because of an influx of inventory.

The company predicts “2.6% home value growth in 2025, a relatively slow pace that is similar to this year’s growth. For existing home sales, Zillow forecasts 4.3 million in the coming year, up slightly from 4.1 million in 2023 and a projected 4 million in 2024.”

“While affordability challenges will remain, buyers should expect more homes on the market, meaning more time to consider their options and more leverage in negotiations,” the report said.

As to mortgage rates, Zillow noted there could be a decline next year. The company expects rates to see multiple swings, with potentially higher refinancing activity during periods when rates are on the lower side.