The housing market is changing, and for many Americans, buying a home might feel just a little more within reach. Starting in 2025, Fannie Mae and Freddie Mac will back mortgages up to $806,500, an increase of 5.2% from the previous limit. This move reflects rising home prices and aims to make federally guaranteed loans accessible to more borrowers. Let us break down what this means for you and how you can take advantage of it.
What are Fannie Mae and Freddie Mac?
If you are new to the world of home buying, you may be wondering who Fannie Mae and Freddie Mac are and what they do. Fannie Mae and Freddie Mac are government-linked entities that do not lend money directly. Instead, they buy mortgages from lenders, allowing banks to offer more loans. These entities make it easier for financial institutions to offer affordable mortgages to borrowers by guaranteeing the loans. By backing mortgages, they ensure lenders can continue providing loans even when housing prices rise.
In simple terms, Fannie Mae and Freddie Mac help make homeownership more accessible to millions of Americans.
How much will you pay each month for a $550,000 mortgage?
Why the loan limit is increasing in 2025
The Federal Housing Finance Agency (FHFA) adjusts loan limits annually based on home price trends. For 2025, the baseline limit is increasing by 5.2%, reflecting the rise in home prices between the third quarters of 2023 and 2024.
In certain high-cost areas, these limits go even higher, allowing you to borrow more for homes in places like New York City, Los Angeles, or Washington, D.C. This increase helps bridge the gap between rising home prices and the financing available to buyers.
How much home can you afford with the new limit?
The new loan limit of $806,500 is significant because it allows you to finance homes that cost nearly $1 million with a 20% down payment. Here is how it works:
- With a 20% down payment, you could afford a home worth up to $1,008,125 under the new limit.
- The higher limit can make a big difference in high-cost areas where home prices have surged.
This is great news for those trying to buy a home without having to navigate the more complex and costly jumbo loan process.
How much will you pay each month for a $400,000 mortgage?
How to apply for a federally backed mortgage
Applying for a mortgage backed by Fannie Mae or Freddie Mac is similar to applying for any other loan. Here is what you need to do:
- Check your credit score: A good credit score improves your chances of qualifying for better terms.
- Save for a down payment: While many Fannie and Freddie loans allow for lower down payments, aiming for 20% can help you avoid private mortgage insurance.
- Compare lenders: Work with a lender experienced in Fannie Mae or Freddie Mac-backed loans.
- Gather documentation: Be ready with income statements, tax returns, and other financial records.
- Get pre-approved: A pre-approval letter shows sellers you are serious and helps you understand how much you can afford.
Is now the right time to buy?
This is a point of contention for many prospective buyers today, especially in a harsh marketplace. According to Selma Hepp, chief economist at CoreLogic, although rates are anticipated to remain elevated through 2025, home prices will continue to appreciate. Buying a home is one of the most reliable ways to build equity over the long haul.
If you have been gathering the amount needed to buy a home and you have decided you are prepared to make that dream, the time may be right based on the increase in conforming loan limits. You have to weigh in all the pros and cons and involve a trusted lender to assess your condition.
