New Conforming Loan Limits

Effective October 1, the previously elevated conforming loan limit for home mortgages, were brought back down.  In Los Angeles, the maximum conforming loan amount fell by more than $100,00.  The federal government previously increased the conforming loan limit (which is the maximum loan that sold to FannieMae, FreddieMac and GinnieMae) as a part of their housing market rescue efforts.  Unfortunately this intervention came with an expiration date of September 30, 2011.

Why it Matters

According to Zillow, “Your once ‘conforming mortgage’ could soon become a jumbo loan, with mortgage rates on the latter pricing about half a percentage point or higher than the former. So instead of enjoying an interest rate of 4.00% on your home loan, you may be stuck paying 4.50% or higher for the same mortgage next week.”

Conforming loans are easier to qualify for, require less of a down payment, and are more marketable to investors and cheaper for consumers because they can be sold on the secondary loan market.

What You Can Do

There are definitely options available to homeowners and home buyers affected by the change.  Buyers should consider putting down more money upfront to keep the loan amount at or below the new loan limit.   Another option could be breaking up your loan into a first and second mortgage, so as to keep the first below the conforming limit.   This will make qualifying easier and will reduce your interest rate, potentially saving you a significant amount of money in the long run.  Lenders will also be more accommodating as a result of this change in conforming loan limits.

According to Zillow, though, “Only about one percent of loans extended to homeowners over the past three years would have been affected by this change, so most of us won’t even notice.”

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