New Conforming Loan Limits, How They Effect You

by Deniece Smith, Realtor, ePro, SRES http://www.dsoldit.com/
Conforming loan limits are anticipated to decrease from the now $729,750 to $625,500. What does this mean to you?

The conforming loan limit determines the maximum size of a mortgage that FHA, Fannie Mae, and Freddie Mac government-sponsored enterprises can buy or guarantee. Non-conforming loans, also known as jumbo loans, usually carry a higher interest rate because they do not have this guarantee.

Before 2008 conforming loan limits were at $417,000. In order to stimulate the real estate market, Congress temporarily raised that limit $729,750 through fiscal year 2011. The new limits, scheduled to adjust October 1, 2011, will decrease that to $625,500.

Let's say you, the Buyer, saved up $81,000. With loan limits at $729,750, you could buy a property up to $811,000.

Now, let's say the limits change to what is anticipated. Your $81,000, together with a loan amount of $625,500, would only allow you to purchase a home of $706,500, a difference of $104,500.

It's a change, but the change is not as painful as it would be if it reverted to pre-2008 numbers. In that case, your $81,000, and your loan of $417,000, would only get you a home for $498,000.

So, although we are facing a decrease in conforming limits, which would be better not to have to face, the compromised amount of $625,500 is MUCH better than if it reverted back to the original $417,000 amount.

Interpreting how all of our new rules affect you is my job. As always, I'm here to help. Please contact me with any of your real estate selling and buying needs.