Dec 8, 2024
If you’ve ever heard the names Fannie Mae and Freddie Mac and pictured them as a sweet old couple running a quaint bed-and-breakfast, you’re not alone. Sadly, they’re not humans — no cookies baking in the oven or cozy rocking chairs here. Rather, they’re government-sponsored entities with a far less charming but much more important job: keeping the mortgage market running smoothly.
Here’s how they work: Fannie and Freddie buy mortgages from lenders and then package those loans into mortgage-backed securities, which are sold to investors. While this might sound like a big money-making scheme at the borrowers’ expense, these entities actually help make mortgages more affordable. By guaranteeing loans and assuming some of the risk, they help keep interest rates lower.
Advertisement
The current average 30-year mortgage rate — it’s currently 6.81%. Without Fannie and Freddie, that rate would probably be a lot higher, making homeownership a lot more expensive.
One way they influence affordability is by setting yearly limits for conforming loans — the types of mortgages they’re willing to purchase. And in 2025, these conforming loan limits are increasing, bringing potential benefits to homebuyers.
Conforming loan limits are increasing
Each year, Fannie Mae and Freddie Mac set a baseline conforming loan limit, adjusting it for high-cost areas. For 2025, the baseline limit is rising from $766,550 to $806,500.
Limits for high-cost areas, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands, are also increasing — from $1,149,825 to $1,209,750 in 2025.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
How higher conforming loan limits can benefit you in 2025
Conforming loans are typically cheaper and easier to qualify for than non-conforming loans. For instance, jumbo mortgages — loans that exceed Fannie and Freddie's conforming limits — often come with higher interest rates, stricter credit score requirements and larger down payments.
With a conforming loan, you might qualify with a credit score as low as 620 and a down payment as low as 5% (though anything less than 20% will require private mortgage insurance, so that’s something to consider). In contrast, a non-conforming lender might require a minimum credit score of 700 and a down payment of 10%, 20%, or even 30%.
The increase in conforming loan limits gives buyer more options, which is especially important given the way home prices have risen substantially in recent years.
During the third quarter of 2020, the median U.S. home sold for $327,900. By the third quarter of 2024, that number jumped to $420,400 — a 28% increase in just four years. Without higher conforming loan limits, more buyers would be forced to turn to pricier non-conforming mortgages.
Helping younger buyers access homeownership
Rising home prices and mortgage rates have made it harder for younger buyers to break into the housing market. In 2024, the National Association of REALTORS reported that the median age of homebuyers increased to 56, up from 49 the previous year. Similarly, the median age for first-time buyers increased from 35 to 38.
Higher conforming loan limits could ease these challenges, especially for younger buyers with smaller savings or less home equity. Being able to buy a home sooner can set them on a path toward greater financial stability and wealthy.
In fact, a report by the National Association of Home Builders confirmed that homeownership plays a key role in household wealth. It also found that households' primary residences were their single largest asset as of 2022, underscoring the role of homeownership in building wealth. By adjusting conforming loan limits are adjusting to today’s housing market conditions, Fannie Mae and Freddie Mac may help open the door to more people, including younger buyers, in 2025.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
