The federal government said Tuesday it would back mortgages of more than $1 million for the first time in 2023 in high-cost areas of the United States, including Long Island.
The Federal Housing Finance Agency announced its adjustment to the "conforming loan" limit, which is the highest amount lenders can give to borrowers and still qualify to have those loans purchased by Fannie Mae or Freddie Mac on the secondary market.
Borrowers whose loans qualify as conforming loans can get better interest rates and lenders are able to more easily sell the loans because they meet the standards of Fannie Mae and Freddie Mac. Lenders can underwrite nonconforming, or jumbo, mortgages above those limits but they can’t be purchased by those government-sponsored entities. By selling mortgages to Fannie Mae and Freddie Mac, lenders raise cash to make additional loans.
FHFA increased the conforming loan limit for single-family homes by $79,000 to $726,200 for most areas in the United States for 2023. The ceiling will become $1,089,300, an increase of $118,200, for 105 high-cost counties and areas, including New York City, Nassau, Suffolk, Putnam, Rockland and Westchester counties in New York. The designation of Long Island as a high-cost area is based on the median home price across 23 counties in the metropolitan area.
What to know
- The federal government for the first time will back mortgages of more than $1 million in high-cost markets including Long Island.
- Borrowers whose loans qualify for federal backing can get better interest rates.
- There were 1,240 homes sold for $1 million or more on Long Island in the third quarter, according to data compiled for Newsday.
Could mean lower rates
Buying a home using a mortgage has become significantly more expensive this year because of higher interest rates. The average rate for a 30-year fixed mortgage was 6.58% for the week ending Nov. 23, according to Freddie Mac. It reached a 20-year high a few weeks ago at 7.08%. A year ago, the average was 3.1%.
The boosted loan limit benefits homebuyers, particularly those who are looking to trade up to a larger home, because they can qualify for a better interest rate, said Andrew Russell, owner of mortgage broker RCG Mortgage in Hauppauge. It also benefits sellers of homes in the $1 million to $2 million range by expanding their pool of buyers.
“Anytime the mortgage guidelines become more liberal and the rates are more attractive in higher loan sizing, it makes certain houses a little more attractive,” Russell said.
There were 1,240 homes that sold for $1 million or more on Long Island in the third quarter, according to data compiled for Newsday by Jonathan Miller, CEO of appraisal firm Miller Samuel. About one-quarter of those sales were for homes in the Hamptons or on the North Fork. To be sure, only a portion of those buyers would use a million-dollar mortgage to make the purchase and some luxury homebuyers buy with cash.
The agency updates the loan limits each November to reflect changes in U.S. home prices as measured by the FHFA House Price Index, which increased 12.2% in the third quarter of 2022 compared with that period in 2021.
The median price of homes sold on Long Island increased by 6% to $620,000 in the third quarter compared with the year-earlier period, according to data from Douglas Elliman and Miller Samuel, which excludes sales on the East End of the Island. Sales data from October showed local home prices leveling off to around the same price points as 2021.
Limit reflects rising prices
The high loan limits reflect the rapid increases in home prices that occurred in the years after the pandemic and help more people get affordable financing, said Daryl Fairweather, chief economist at Redfin. But the policy does nothing to resolve the inadequate supply of homes that has driven up prices, she said.
“It’s a way of affirming these high prices without really getting at the core of the problem for why they exist,” she said.
Upper-middle class borrowers stand to benefit but not people who can’t afford a home, Fairweather said.
“It’s not doing anything to help the renter class,” she said. “It’s just going toward the people who are already in a position to be able to borrow to buy a million-dollar home.”