Effects of Lower Conforming Loan Limits Debated
September 28, 2011
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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
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
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.