March 13, 2008

High-Cost Mortgages: Now a Bit Cheaper

Mortgage costs just got a little cheaper for buyers in high-cost areas.

The size of loans that can be guaranteed by Freddie Mac and Fannie Mae was raised recently by the Office of Federal Housing Enterprise Oversight. The new, higher loan limits will stay in effect through the end of the year, allowing the government sponsored enterprises to buy much higher-priced mortgages in some areas of the country.

Also, the size of the loans the Federal Housing Authority (FHA) can insure was raised by Housing and Urban Development (HUD).

Both moves will lower borrowing costs for buyers of higher priced homes, and aim to boost flagging real estate markets.

Previously, Fannie and Freddie could only insure mortgages of up to $417,000, called conforming loans. That meant, assuming a 20% down payment, that only buyers of homes costing $521,500 or less were eligible for mortgages with GSE backing.

The new loan limits for Fannie and Freddie vary by area based on local median home prices and go as high as $793,750 in some markets. By making it easier for buyers to get loans, regulators hope to get these markets moving again.

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