Loans Backed by Fannie and Freddie Break $1 Million Barrier

The Federal Housing Finance Agency (FHFA) has raised the ceiling on "conforming loans" — those backed by the mortgage giants Fannie Mae and Freddie Mac — to $1,089,300 for co-op and condo buyers in New York City. It's the first time the threshold has been set above $1 million, Brick Underground reports, and it's welcome news both for apartment hunters and for boards eager to see apartment sales closing during this tough real estate market.

A higher conforming limit will allow more borrowers access to conventional, fixed rate-financing, instead of adjustable rate financing, says Ryan Greer, senior vice president at National Cooperative Bank. Adjustable-rate mortgages or ARMs can be attractive to buyers trying to buy expensive properties; they often have lower rates than a fixed-rate loan in the beginning of the term — and banks can consider that lower rate when qualifying buyers. But borrowers can get into trouble when the loans reset and payments grow larger and they’re unable to sell or refinance.

The higher loan values for conforming loans could help buyers who are on the cusp of being able to afford to trade up, says Matt Hackett, manager of operations at Equity Now, a mortgage banker.

Crossing the $1 million threshold could give the sales market a boost as well. Hackett calls it “a psychologically important event, and not just for those who are in that market, but for all those who have been watching prices soar over the past two years. For years the FHFA loan limit was stuck at $417,000, so this is a huge difference for those of us who remember those days.”

Melissa Cohn, regional vice president of William Raveis Mortgage, points out that bigger mortgages will likely be welcome news to apartment buyers in New York City, where prices have recently slipped but are not heavily discounted. The median sales price for Manhattan condos and co-ops was $1.1 million in the fourth quarter of 2022. That's down 5.5% compared to the previous year, according to fourth quarter Manhattan sales data in the latest edition of the Elliman Report, but it's still above $1 million — which makes the new limits on conforming loans welcome news indeed.