Effects of Lower Conforming Loan Limits Debated

New limits for conforming loans are set to take effect October 1, and depending on who you ask, the change may or may not be very significant.

Conforming loans are ones that can be insured by government-sponsored entities Freddie Mac, Fannie Mae and the Federal Housing Administration, and later sold on the secondary mortgage market. In most areas of the country, loans on single-family homes worth no more than $417,000 are considered conforming. Meanwhile, in high-priced regions - like New York and California - the limit was $729,750.

Mortgages worth any more than that are considered jumbo loans and come with different terms and qualifications than standard fixed-rate loans.

Congress has issued an extension on current conforming loan limits in the past, but it is not clear if legislators will follow through with another one by October 1. If they don't, limits will drop to lower levels. For example, the most expensive markets will see their ceiling decrease to $625,500.

That means a higher number of loans on the market will qualify as jumbo loans and not standard mortgages. Housing advocates say that could threaten the affordability of homes in some markets, but HousingWire reports a study by the Federal Reserve shows only 1.3 percent of eligible mortgages in 2010 would have been affected by the lower limit.

While no one's quite sure where the Congressional handwringing will lead, homebuyers have options. If you're in the market for a high-priced property, be sure you have a strong credit score and plenty of money saved for a down payment - at least 20 percent of the home's cost. Options for interest-only loans can also keep payments low during the mortgage's early stages.