I recently posted on Facebook that the Conforming Loan Limits were dropping. Many of my clients responded with a wide range of questions. It was quickly apparent was that there was some confusion. I found the confusion to be based in the terminology that was floating around. What one person called Jumbo, another knew as High Balance. Is there a difference between Conventional and Conforming? Why does this even matter? Here’s a quick description of what’s going on and how it will affect you and your loans for Buying, Selling or Refinancing.
The Temporary Conforming Loan Limits are being lowered. The bottom line is this will affect how much money is available, and how much loans will cost. To understand why and how it will affect you, we should first define some important terms.
- Conforming Loans – Any loan that meets conforming guidelines is eligible to be bought Fannie Mae. This equates to a nearly endless demand for such loans resulting in quick access to relatively low interest rate $.
- Conforming Loan Limit -This is the maximum loan that will meet Conforming guidelines. Currently $417,000. This is staying the same.
- High Balance Loan Limit – aka Conforming Jumbo – These are loan amounts above $417,000 up to the amount determined by county. For example, San Diego is $692,500. These are the limits that are being lowered.
- Jumbo – aka Non Conforming – This is anything that doesn’t fit into the Conforming Guidelines. Typically because of the loan amount.
Ok, now that we got that out of the way, here’s the deal. When the housing market crashed, lending all but dried up. The only loans that were readily available were those below $417,000. That’s because they fit the Conforming Guidelines and thanks to Fannie, the appetite was still there. However, everything above that mark was nearly impossible to find. That’s because banks were scared and individual investors had no faith in the housing market.
So in order to help put the Market on life support, the Conforming Loan Limits were temporarily raised, and the High Balance Conforming Loan (aka Conforming Jumbo) was born. This provided a much needed resource for loans that were just outside of the typical conforming guidelines. However, as is the nature of “temporary” things, it’s now going away. Well sort of…
All loans under the current High Balance Limits must Fund by the end of September. In fact many lenders are already restricting their new loan amounts down to the New Temporary Loan Limits. For Example, in San Diego this New Conforming Loan Limit will go down to $546,250.
Why does it matter to you? Conforming loans are the cheapest money in town. They have the best rates because there is high demand for them thanks to Fannie, Freddie and the gang. After the limits go down, loans that are no longer in the High Balance category become Non Conforming. Non Conforming loans rely on a smaller investor market and therefore require a higher rate to be attractive. Higher rate means more cost to the borrower, lower home prices, and sometimes more challenging qualifications.
The take-home lesson. Loan limits will change again. It’s highly likely, that some time in the near future we will see the loan limits drop again. So for now, get in where you fit in. If you have a loan to refinance, a house to buy, or a house to sell, you may want to check in with your favorite Mortgage Planner to see exactly how that might affect you.
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