by Jeff Vasishta
If you want to buy a million-dollar home and have enough for a down payment, you can now ask Uncle Sam for the rest.
That’s probably an oversimplification, but if you think of government-backed loans to finance single-family homes, you likely think of modestly priced residences for the middle class. However, the federal government is expanding its loan limits through Fannie Mae and Freddie Mac-backed mortgages—offering loans to the conforming loan limit value of $806,500, starting in January 2025. That’s a marked increase of 5.2% from 2024 levels.
A conventional down payment of 20% means you can buy a million-dollar home backed by government financing. The move reflects escalating home prices, which have edged many Americans out of ownership.
“I think it’s practical for (Fannie and Freddie) to meet the market where it’s at,” Molly Goodman, co-founder of Abundant Housing Massachusetts, a housing advocacy organization, told USA Today. “We still need financial products that can serve the market, but we need to recognize that this is not sustainable.”
How Fannie and Freddie Work
If you can’t remember taking a mortgage out directly through Fannie Mae or Freddie Mac, that’s because you haven’t. Government-sponsored enterprises (GSE) provide mortgage financing and help make homeownership more accessible. They do this by buying mortgages from lenders, who then have more money to help other buyers, thus providing liquidity in the market and keeping housing stable and affordable.
“Having those loan limits raised helps a lot more people. It makes it a lot easier, especially for us as lenders,” David Horvath, vice president and senior mortgage loan officer with Meridian Bank, said in the USA Today article. Mortgages backed by Fannie and Freddie offer more flexibility for applicants on things like down payments and credit profiles than jumbo mortgages do, Horvath added.
A Governmental Safety Net for Loans
Fannie and Freddie had to be bailed out by the government during the 2008 financial crash and has been in federal conservatorship ever since—though amendments were made in 2021. They are tied to the Treasury Department, funded by the American taxpayer, and pay quarterly dividends for the privilege. In return, the government steps in to help them in times of financial difficulty—as is what happened in 2008.
The Federal Housing Finance Agency’s (FHFA) annual loan limits are tied to national home prices and adjusted accordingly and publicly. The correlation is simple: The 5.21% increase in the home price index between the third quarter of 2023 and 2024 resulted in loan limits changing by the same amount—the new single-family upper limit of $806,500. The loan limits increase when local median prices are more expensive.
FHA Rules for Flippers
For flippers, increasing loan limits for Freddie and Fannie financing opens up another category of homebuyers who may not have been previously eligible. It allows investors to look for homes in competitive areas more confidently, knowing that end buyers with less-than-stellar credit scores or lower down payments might still be able to buy a home.
However, there are certain rules flippers must adhere to when selling to buyers who are preapproved for an FHA mortgage. These are:
There has to be a 90-day seasoning period between buying and selling a home to an FHA-approved buyer. This prevents wholesalers from doing double closings and safeguards buyers from buying homes with minimal renovation, but it should not present an issue for flippers who have done major renovation work.
If the home is being sold for more than the flipper paid for it between 91 and 180 days after acquisition, a second appraisal (conducted by an FHA-approved appraiser) must be conducted. The buyer cannot pay for the second appraisal; the seller/flipper must bear the cost.
FHA approvals are synonymous with red tape, onerous document checks, and expenses that can delay a closing. So, knowing this ahead of time or working with an efficient, approved FHA mortgage broker to streamline the process and address any foreseeable issues upfront will help an experienced flipper get to the finish line.
Mortgage Competition Heats Up
Nonbanks—online lenders such as Rocket Mortgage, PennyMac, and United Wholesale Mortgage—have already increased their conforming loan limits ahead of the FHFA’s official announcement, which is standard each autumn. These lenders compete with Fannie and Freddie-associated lenders, so FHFA has to compete by increasing their limits accordingly.
An Uncertain Future
According to the Wall Street Journal, the incoming Trump administration plans to privatize Fannie Mae and Freddie Mac. Government stakes in the two lending institutions are estimated to be in the hundreds of billions of dollars, allowing bankers to sell over $100 billion worth of shares at once. This would create the biggest stock and bond offerings in history and attract sovereign-wealth funds.
Critics fear such a large investment buy-in could destabilize the U.S. housing market, which relies heavily on FHFA backing. About 40% of the $435 billion of residential loans originated in the second quarter of 2024 were sold to Fannie or Freddie, according to Inside Mortgage Finance, not including multifamily mortgage debt (of which 40% is $2.2 trillion).
Advocates of privatization point to it as a way to reduce the deficit. At the same time, opponents fear it will decrease access to credit for homebuyers and increase the risk for taxpayers, sending mortgage costs skyward.
“The conservatorship was always intended to be temporary, so it makes sense that policymakers release them from conservatorship now that reforms are complete,” a spokesman for billionaire John Paulson—a Trump backer and hedge fund manager who owns a sizable share of Fannie and Freddie shares—said in a statement. “The government will be the biggest winner in a release of [Fannie and Freddie].”
Final Thoughts
Any sale of Fannie and Freddie—which were created by Congress—needs to benefit the mortgage and housing industry and enable the public to obtain safe, securitized loans in tandem with escalating home prices, as recently demonstrated. Whether that transpires remains to be seen. What’s not up for debate is that Fannie and Freddie have played an integral part in propping up home lending during its most turbulent times, providing liquidity, stability, and affordability.
Investors have relied on these loans for multifamily purchases as landlords, while flippers and homebuilders have used Fannie and Freddie to sell homes to owner-occupants. The secondary mortgage market relies on Fannie Mae and Freddie Mac to provide mortgage-backed securities (MBS), reducing the cost of borrowing for affordable housing. The increased loan limits allow borrowers—owner-occupants and investors looking to rent out homes after living in them— to remain competitive and buy homes at their current market value.
Given the current housing crisis, a strong, functioning Freddie and Fannie are needed now more than ever.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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