MM Money

More Mortgages To Be 'Conforming'

Thousands of U.S. homeowners will be able to take advantage of slightly better mortgage terms in 2005 as a hike in the conforming-loan limit will allow mortgage giants Fannie Mae and Freddie Mac to purchase bigger loans.

Fannie Mae (FNM: news, chart, profile) and Freddie Mac (FRE: news, chart, profile) said Tuesday that effective Jan. 1, their single-family loan limits would move up to $359,650 from $333,700 this year. The increase is based on the October-to-October changes in average U.S. house prices as published by the Federal Housing Finance Board and on guidance issued by the Office of Federal Housing Enterprise Oversight.

Based on both new and existing properties, the finance board said the average price of a U.S. home was $264,540 last month, up 8.5 percent from $243,756 in October 2003. The figures come from the board's monthly survey of lenders.

This year's increase in the loan limit marks a significant jump over the 3.4 percent rise in October 2003, but it's more in line with the two years prior to that, when prices rose by 7.3 percent and by 9.3 percent.

The higher loan limits have the potential to save as many as 340,000 borrowers as much as $24,800 in interest charges over the life of a typical 30-year mortgage, according to Freddie Mac's estimates. That's because interest rates on conforming loans are generally about three-eighths of a percentage point below those on higher loans, called jumbo mortgages.

The new loan limits for multiple-unit properties will be:

$460,400 for mortgages on two-family properties (up from $427,150);
$556,500 for mortgages on three-family properties (up from $516,300);
$691,600 for mortgages on four-family properties (up from $641,650).
Maximum loan amounts are 50 percent higher for first mortgages on properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Most of the loans that Fannie Mae purchases are well below the conforming limit. The average loan size for single-family properties funded by the Washington-based company in 2004 is about $160,000.

The 2005 loan limit for second mortgages will be $179,825.