High housing costs have been a persistent issue in recent years, with fluctuating mortgage rates and the lingering effects of the pandemic playing a significant role. The Federal Housing Finance Agency (FHFA) recently announced that conforming loan limits (CLL) are set to rise in 2025. This increase is in response to the continuous rise in home prices.

Unraveling the Effects of Housing Costs on Mortgage Limits

Section 1: The Rise in Conforming Loan Limits

Housing prices have remained stubbornly high for the past few years. As a result, the FHFA has been compelled to raise the standard CLL. In 2025, the new limit for one-unit mortgages in most states is $806,500. Borrowers seeking larger loans have the option to explore alternative mortgage options such as jumbo loans or private loans. This increase represents a 5.21% growth from 2024. The FHFA House Price Index release showed that average U.S. home values also increased by the same amount this year. In areas where 115% of the local median home value exceeds the baseline CLL value, the loan limit will be higher. For instance, in places where homes cost 115% more than the usual local price, borrowers can borrow more money. In 2025, the loan limits for one-unit properties in these areas will be $1,209,750. Alaska, Hawaii, Guam, and the U.S. Virgin Islands all have the higher baseline loan limit for one-unit properties.

Section 2: Mortgage Rate Fluctuations and Their Implications

Mortgage rates have been on a rollercoaster ride throughout the year, with drops and surges in the last few months. Homebuyers can expect similar trends in 2025. Zillow predicts slower home value growth at 2.6%, similar to this year's growth. The real-estate giant also anticipates easing mortgage rates in the new year but remains cautiously optimistic given the rate fluctuations in 2024. While rates are likely to fluctuate, it could potentially give buyers an advantage. More listings are expected to hit the market as sellers stop waiting out high mortgage rates. "Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became. More inventory should shake loose in 2025, giving buyers a bit more room to breathe," said Zillow Chief Economist Skylar Olsen. Affordability will remain a challenge, but with more homes on the market, buyers will have more leverage during negotiations.

Section 3: The Potential Impact of Fannie Mae and Freddie Mac Privatization

The mortgage industry may undergo a significant change during President-elect Donald Trump's administration. During the previous term, Trump attempted to privatize Fannie Mae and Freddie Mac but failed. This time, the administration is hopeful of completing the task. It is challenging to predict exactly what the privatization of these two companies, which back about 70% of all U.S. mortgages, will entail. Allies of the president-elect believe stakeholder benefits will be a major reason for going private. However, borrowers are likely to see a substantial shift in their yearly mortgage costs. Economist Mark Zandi estimates an additional $1,800 to $2,800 annually in mortgage costs if privatization proceeds. The additional costs would arise from the disruption of the typical system these companies operate. Currently, Fannie Mae and Freddie Mac purchase loans from lenders and combine them with securities sold to investors instead of issuing loans directly. If these companies go private, the system will change, and investors may view mortgages as higher-risk investments, leading to higher borrowing costs for buyers.If you're considering a home loan, consider using Credible to easily compare interest rates from multiple lenders in minutes. It's a valuable tool for consumers looking to find the right mortgage rate.