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This morning, Fannie Mae announced that it will raise its loan limits in 2018. That’s welcome news for those who want to buy next year, because so-called “conforming loans,” backed by Fannie Mae and Freddie Mac, often come with lower interest rates than loans classified as “jumbo” or “non-conforming.”

Most borrowers will get a higher limit in 2018

The new loan limit for borrowers in most parts of the US will be $453,100, up from 2017’s $424,100. That’s a 6.8 percent increase over the 2017 limit.

Loan limits are based on median home prices in the county or MSA (metropolitan statistical area) in which the property is located. For next year, all but 71 counties or MSAs will get an increase.

The new limits are effective for loans closed on or after January 1, 2018. Find detailed information, including Fannie Mae’s Loan Limit Look-Up Table, on Fannie Mae’s Loan Limits page.

Why do higher loan limits matter?

Higher conforming loan limits help make cheaper financing available to more borrowers. Fannie Mae and Freddie Mac are government-sponsored enterprises that buy loans that conform to their guidelines from lenders. Then, they sell them to investors.

Loans that meet these guidelines often cost lenders less to originate, and so these less-risky mortgages tend to come with better mortgage rates. And because so many lenders offer conforming loans, they are easier to find, shop for, and compare.

What about jumbo or non-conforming mortgages?

Jumbo loans, with amounts that exceed conforming limits, are not always more expensive. They do vary more from lender to lender, however, so you have more to gain by shopping carefully. In addition, the larger amounts can turn a small difference in interest rate into a large difference in payment.

In more expensive areas, limits for Fannie Mae and Freddie Mac loans are higher. So check your own local limit before you go mortgage shopping.

If you have to go with a jumbo home loan, get several quotes from competing lenders and choose the one with the best terms. The higher your mortgage amount, the more you have to gain by shopping.

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