Home buyers may find it easier to afford a home now that Fannie Mae and Freddie Mac have increased the size of home loans they buy from lenders.
The two federally chartered companies announced last Tuesday that starting Jan. 1, they will increase the single-family mortgage loan limit to $333,700, which is 3.4 percent higher than the existing loan limit of $322,700.
The 3.4 percent increase is the smallest since 1996, which is a sign that home prices are not rising as quickly as in past years. The loan limits are adjusted each year based on average home price data produced by the Federal Housing Finance Board.
"Interest rates are significantly lower on conforming mortgages than on jumbo mortgages," said Fannie Mae Chairman and Chief Executive Officer Franklin D. Raines in a prepared statement. "By obtaining a mortgage that Fannie Mae is eligible to buy, in 2004, as many as 95,000 home buyers could save up to $21,900 over the life of a 30-year mortgage."
Freddie Mac said the benefits could be even more widespread, lowering costs for an estimated 150,000 families, who could save as much as $38,700 over the life of a 30-year mortgage.
Most loans Fannie Mae purchases are well below the conforming limit. The company's average loan size for single-family properties in 2003 was about $150,000.
Both companies drive down costs by buying mortgages from lenders, which creates a continuous flow of funds, freeing up banks to make more loans. According to lenders, loans financed with the help of Fannie Mae and Freddie Mac cost about 3/8 of a percentage point less than loans financed by other means.