Conforming Loan Limits Raised for First Time Since 2006

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The maximum baseline conforming loan limit in 2017 is being increased to $424,100 by the Federal Housing Finance Agency. This is the first increase since 2006, and it is an indication of rising home prices.

Since 2006, the baseline maximum conforming loan limit for loans purchased by Freddie Mac and Fannie Mae was $417,000.

The baseline loan limit applies to most of the country, with the exception of high-cost areas where 115% of the local median home value exceeds the baseline loan limit. In these areas, higher loan limits apply.

The new ceiling loan limit that applies to the areas with the most expensive homes will be $636,150, which represents 150% of the maximum baseline, the FHFA said.

The choice to raise the loan limit is a result of higher home prices nationwide. The Housing and Economic Recovery Act, which established the previous baseline loan limit, required that the limit be adjusted every year to account for fluctuations in the national average home price. But the legislation also required prices to recover following the financial crisis to pre-housing bust levels before such adjustments could be made.

Home prices were 1.7% higher in the third quarter of 2016 than during the same period in 2007, according to the FHFA's Home Price Index, also released on Wednesday. The increase to the baseline conforming loan limit matches that 1.7% uptick.

"Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007 and thus the baseline loan limit had not been increased," the FHFA said in its announcement of the increase.

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