Fannie Mae and Freddie Mac raised the limit last week on the size of single-family home mortgages they buy from banks by 3.4 percent to $333,700, increasing the pool of loans they are eligible to purchase or guarantee.
The new loan ceiling, up from $322,700, matches the increase in the U.S. average home price in October from a year earlier, Washington-based Fannie Mae said.
The boost for so-called conforming loans is half that of last year as house-price appreciation has slowed, said Kevin Jackson, a mortgage bond analyst at RBC Dain Rauscher Inc. in Chicago.
Mortgages that fall within the companies' purchase limits are cheaper for consumers because banks and thrifts can readily sell them to Fannie Mae and Freddie Mac or place them in mortgage-backed securities.
The lower rates available on conforming loans means 95,000 homebuyers next year could each save as much as $21,900 over the life of a 30-year mortgage, Fannie Mae Chief Executive Officer Franklin Raines said in a statement.
Fannie Mae and Freddie Mac are chartered by the government to promote homeownership. The shareholder-owned companies finance housing by buying loans from banks, freeing the lenders to make more loans.