Time to Raise the Roof

Effective Jan. 1, the limit for a single-family property mortgage will boost to $322,700, a 7.3% increase from the current $300,700 limit.

The government-sponsored mortgage giants use the average home purchase price increase to determine the conforming loan limit each year. Between October 2001 to October 2002, it was 7.3%, Freddie’s announcement said. The prior year, it was 9.36%.

The increase will allow about 210,000 more families to conform to Fannie’s requirement for a loan purchase. At the current spread between a Fannie mortgage rate and a jumbo mortgage rate, those families will save up to $23,500 in interest over the life of a 30-year loan, the Fannie announcement said.

According to the Freddie announcement, the increase will make it possible for about 250,000 additional families to obtain lower cost mortgage financing. Freddie estimates that those families will save about $37,700 over the life of a 30-year mortgage.

The average loan size for single-family properties in 2002 was $139,300, the Fannie announcement said. Using that average and Fannie’s estimate of 210,000 more families conforming, that’s $29.25 billion more in conforming loans with the new limit increase. Using Freddie’s estimate, it’s $34.8 billion more.

The new limit increase will have an impact on refinancing, but how much is anybody’s guess, said Laura Armstrong, senior director of public affairs at Mortgage Bankers Association of America. Mortgage companies have been anticipating the increase and already have been accepting applications based on it, she said.

At Fannie and Freddie, limits for multi-unit loans also will increase 7.3%.

A two-family property will spring to $413,100, up from the current $384,900; three-family property limits will increase to $499,300 from $465,200; and a four-family property will increase to $620,500 from $578,150.

The loan limit for second mortgages will increase to $161,350 from the current $150,350.

In Alaska, Hawaii, and the U.S. Virgin Islands, the maximum amount for one-to-four-family mortgages is 50% higher than the limits for the rest of the country.

Fannie and Freddie set current limits last year based on the prior year’s average increase in purchase price, which was 9.36%. A couple of months later in January 2002, the Federal Housing Administration (FHA) announced its increase in mortgage limits would be 9%.

If the FHA announces a limit increase for 2003 that’s as similar as Fannie and Freddie’s again, FHA could announce in January a limit increase of about $154,872 from the current $144,336 for single-family unit loans in low-cost areas. Using the same method, the FHA’s increase for high-cost areas could be $280,706 from the current $261,609.