WASHINGTON— The federal government is about to backstop mortgages of more than $1 million for the first time, a reflection of the rapid appreciation in home prices nationally over the past few years even as the mortgage market has recently cooled.
The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in high-cost markets, such as parts of California and New York, from $970,800 this year, the Federal Housing Finance Agency said Tuesday.
For most parts of the country, loan limits will rise to $726,200 from a 2022 maximum of $647,200, said FHFA, which oversees mortgage-finance giants Fannie Mae
FNMA,
-2.23%
and Freddie Mac
FMCC,
-2.30%.
By law, loan limits are calculated annually using a formula that factors in average housing prices.
The increase may make it easier and cheaper for borrowers purchasing one-unit homes, particularly those near the limits. The higher limits are also likely to renew a debate about how big of a mortgage is too big to be backed by the government.
Mortgages within the limits are called conforming loans, and they generally come with lower closing costs and can require a smaller down payment than mortgages that exceed the limit, known as jumbo mortgages.
An expanded version of this story appears on WSJ.com.
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