What new federal mortgage loan limits mean for Long Island's luxury home market
An oceanfront home at 700 Meadow Lane in Southampton is shown on Wednesday, Jan. 3, 2024. Buyers looking for luxury houses could get a boost from the federal government increasing its mortgage loan cap to $1.2 million next year. Credit: Newsday/Newsday
The federal government will back mortgages up to $1.2 million in high-cost areas like Long Island next year, a move local mortgage experts said will boost the Island’s luxury real estate market.
The Federal Housing Finance Agency announced last week it was raising its conforming loan limit, the maximum amount lenders can give out and still qualify for those loans to be bought by secondary mortgage purchasers Fannie Mae or Freddie Mac.
The threshold for single-family homes next year in high-cost areas will be $1,209,750. Loans higher than that are considered jumbo loans and are not eligible for purchase by Fannie Mae or Freddie Mac, companies created by Congress to provide better access to credit. Lenders rely on those purchases to fund future loans.
"It opens up the door for more flexibility for lending and gives more options to homeowners with better rates," said Zahra Jafri, founder and president of Lynx Mortgage Bank in Westbury. "The bottom line is, because we are in a high-cost area, the availability of credit is imperative for people to continue to purchase and move forward with homeownership."
Nassau and Suffolk counties are two of 99 areas in the United States and Washington D.C. with a higher conforming loan limit than the rest of the country. The limit will be $806,500 next year in most of the U.S.
While Long Island homebuyers have the option to borrow up to $1.2 million in a loan backed by the federal government, borrowers can benefit from staying within the standard limit of $806,500, said Andrew Russell, owner and founder of RCG Mortgage in Hauppauge. Conforming loans above that threshold are considered high-balance loans and typically come with a higher mortgage rate.
He estimated borrowers taking out an $800,000 mortgage next year who will benefit from the higher standard loan limit could see a roughly half-point reduction in their interest rate, which would translate to about $250 a month in savings.
To illustrate his point, Russell floated one scenario of a homebuyer who would narrowly meet the new criteria for a high-balance conforming loan. A buyer purchasing a $1.5 million house, using a 20% down payment of $300,000, could seek a conforming loan of $1.2 million. The person would likely have a roughly $10,000 mortgage payment, including taxes and insurance.
He said a household earning about $250,000 a year with no debt could qualify for that loan.
That doesn’t mean it’s a good idea.
"If you’re making a quarter-million dollars a year, by the time you net money after taxes and you have all your life bills, there’s no way you could afford it," Russell said. "But it just shows that the mortgage guidelines are actually not all that conservative."
Russell said he hopes mortgage rates will trend downward in the new year to make home loans more affordable.
The average 30-year fixed mortgage rate was 6.81% during the week ending Nov. 27. It dipped from the previous week after several months of steady increases. The average is up from around 6.1% in late September.
Buyers who do qualify for a loan are having trouble purchasing homes because of competition for an insufficient supply of available properties, Russell said.
"The affordability is definitely coming back," Russell said. "It’s just we’re hearing again that it’s really hard to get an accepted offer."
The FHFA raises the limit annually as home prices increase. This year the high-cost loan limit increased 5.2%. That is the same rate at which the agency’s national Home Price Index rose in the third quarter of the year compared to the July-to-September period last year.
Prices have risen faster on Long Island, according to one measure. The median price of single-family homes and condos on Long Island, excluding the East End, increased 9.4% to $700,000 in the third quarter compared to the previous year, according to a report released by real estate brokerage Douglas Elliman and appraisal firm Miller Samuel last month.
The higher loan limits are relevant to the upper echelon of the Island's housing market.
There were 648 home sales on Long Island, excluding the East End, that sold for at least $1.34 million in the third quarter, according to Douglas Elliman and Miller Samuel. Those deals represented the top 10% of the market.
In the Hamptons, the Island's priciest submarket, the median price among 393 deals was about $1.54 million, up 8.5% from the third quarter a year ago for sales that closed from July to September.
The national and local price measures are calculated differently, though. The FHFA has a repeat-sales index of single-family homes, which means it compares sales of homes against previous times those same properties sold.
Douglas Elliman and Miller Samuel report the median price of all the deals in a given quarter compared with the sales that occurred in that quarter a year ago. Changes in the size and location of the homes that sell can affect the median price during a given period.
The federal government will back mortgages up to $1.2 million in high-cost areas like Long Island next year, a move local mortgage experts said will boost the Island’s luxury real estate market.
The Federal Housing Finance Agency announced last week it was raising its conforming loan limit, the maximum amount lenders can give out and still qualify for those loans to be bought by secondary mortgage purchasers Fannie Mae or Freddie Mac.
The threshold for single-family homes next year in high-cost areas will be $1,209,750. Loans higher than that are considered jumbo loans and are not eligible for purchase by Fannie Mae or Freddie Mac, companies created by Congress to provide better access to credit. Lenders rely on those purchases to fund future loans.
"It opens up the door for more flexibility for lending and gives more options to homeowners with better rates," said Zahra Jafri, founder and president of Lynx Mortgage Bank in Westbury. "The bottom line is, because we are in a high-cost area, the availability of credit is imperative for people to continue to purchase and move forward with homeownership."
WHAT NEWSDAY FOUND
- The federal government raised the conforming loan limit for mortgages on single-unit properties in high-cost areas to $1,209,750 for 2025.
- Nassau and Suffolk counties were 2 of 99 areas in the United States and Washington D.C. that qualified as high-cost, which raises the loan limit to 1.5 times the level of the rest of the country.
- Local mortgage experts said the 5% increase to the loan limit for next year provides easier access to credit for luxury homebuyers.
Nassau and Suffolk counties are two of 99 areas in the United States and Washington D.C. with a higher conforming loan limit than the rest of the country. The limit will be $806,500 next year in most of the U.S.
While Long Island homebuyers have the option to borrow up to $1.2 million in a loan backed by the federal government, borrowers can benefit from staying within the standard limit of $806,500, said Andrew Russell, owner and founder of RCG Mortgage in Hauppauge. Conforming loans above that threshold are considered high-balance loans and typically come with a higher mortgage rate.
He estimated borrowers taking out an $800,000 mortgage next year who will benefit from the higher standard loan limit could see a roughly half-point reduction in their interest rate, which would translate to about $250 a month in savings.
To illustrate his point, Russell floated one scenario of a homebuyer who would narrowly meet the new criteria for a high-balance conforming loan. A buyer purchasing a $1.5 million house, using a 20% down payment of $300,000, could seek a conforming loan of $1.2 million. The person would likely have a roughly $10,000 mortgage payment, including taxes and insurance.
He said a household earning about $250,000 a year with no debt could qualify for that loan.
That doesn’t mean it’s a good idea.
"If you’re making a quarter-million dollars a year, by the time you net money after taxes and you have all your life bills, there’s no way you could afford it," Russell said. "But it just shows that the mortgage guidelines are actually not all that conservative."
Russell said he hopes mortgage rates will trend downward in the new year to make home loans more affordable.
The average 30-year fixed mortgage rate was 6.81% during the week ending Nov. 27. It dipped from the previous week after several months of steady increases. The average is up from around 6.1% in late September.
Buyers who do qualify for a loan are having trouble purchasing homes because of competition for an insufficient supply of available properties, Russell said.
"The affordability is definitely coming back," Russell said. "It’s just we’re hearing again that it’s really hard to get an accepted offer."
Rising home prices
The FHFA raises the limit annually as home prices increase. This year the high-cost loan limit increased 5.2%. That is the same rate at which the agency’s national Home Price Index rose in the third quarter of the year compared to the July-to-September period last year.
Prices have risen faster on Long Island, according to one measure. The median price of single-family homes and condos on Long Island, excluding the East End, increased 9.4% to $700,000 in the third quarter compared to the previous year, according to a report released by real estate brokerage Douglas Elliman and appraisal firm Miller Samuel last month.
The higher loan limits are relevant to the upper echelon of the Island's housing market.
There were 648 home sales on Long Island, excluding the East End, that sold for at least $1.34 million in the third quarter, according to Douglas Elliman and Miller Samuel. Those deals represented the top 10% of the market.
In the Hamptons, the Island's priciest submarket, the median price among 393 deals was about $1.54 million, up 8.5% from the third quarter a year ago for sales that closed from July to September.
The national and local price measures are calculated differently, though. The FHFA has a repeat-sales index of single-family homes, which means it compares sales of homes against previous times those same properties sold.
Douglas Elliman and Miller Samuel report the median price of all the deals in a given quarter compared with the sales that occurred in that quarter a year ago. Changes in the size and location of the homes that sell can affect the median price during a given period.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
