Pending Reduction of Conforming Loan Limits

You may not be aware that the federally-mandated threshold for jumbo loans is scheduled to be changed on October 1, 2011. The threshold will be reduced from $729,750 to $625,500.

Background

In 2008, Congress enacted temporary higher loan limits as part of the government’s economic stimulus package. Conforming loan limits were set at $729,750 for high end markets such as ours. The Economic Recovery Act increased the Fannie Mae/Freddie Mac and FHA conforming loan limit to encourage prospective buyers to enter the market and to enable them to be eligible for larger loans without having to pay jumbo loan interest rates.

As a condition of the original legislation, that limit is scheduled to expire on Sept. 30th. The new conforming loan limit will be reduced to $625,500 as of Oct. 1st. Please share this information with your clients whose financing could be affected by the reduced loan limit as well as the timing of their purchase decision.

What Does This Mean for Buyers?

We’ve heard banks are already beginning to impose stricter requirements based on the upcoming October 1st changes. Anyone considering closing on a home between now and October 1 should try to do so expeditiously, particularly if their loan approval has not yet taken the expiration of the current loan limits into account.

Also, anyone thinking of signing a contract in the near future needs to know about the limit changes in case it impacts their need for financing.

Finally, anyone looking to refinance their homes won’t be able to do so for a $729,750 mortgage without paying the $104,250 discrepancy toward the loan balance at the closing – unless they refinance it as a jumbo loan; hence higher mortgage rates!

Please note, it is important if you are considering buying a property in the next few moths you should speak with a mortgage broker or banker to discuss fully how these changes may impact you and your financing.