Buyers to Experience Lower Rates Due to Rise in Conforming Loan Limits

Since 2006, conforming loan limits have stayed at $417,000 but on February 13, 2008, the President signed an economic stimulus package that includes a temporary increase of conforming loan limits.

For those not familiar with the industry, Fannie Mae and Freddie Mac are governmental institutions that purchase mortgage loans from banks. Each year, they collaborate to set criteria loans must meet so they can be purchased and these loans called conforming loans. These loans are typically set at a lower interest rate and have better terms than non-conforming loans. The reasoning behind the change is to help homeowners stave off foreclosure and defaults due to high or adjusting mortgage rates.

While banks have still not included these new loan limits in the programs they offer, many are still unsure if this change will have a significant impact on the housing industry and the number of defaults. Right now, even in areas where most homes fall within the conforming loan limits, we are still experiencing defaults and foreclosures.

However, this bill may help home buyers purchase homes who had trouble qualifying for loans in higher priced areas like the San Gabriel Valley previously and help recent home buyers lower their monthly payments. For home buyers looking for real estate in Arcadia, the average sales price for a single family home is well over $700,000. Even with a traditional 20% down, these loans would still be considered non-conforming loans. However with the new loan limit for Los Angeles County of $729,750, more home purchasers would be able to qualify under the less stringent requirements of a conforming loan. In addition the bill is retroactive to July 1, 2007, meaning homeowners who recently purchased homes and have a loan for less than $729,750, will be eligible for the lower, conforming interest rates.

The exacts results of this increase will be seen in coming months, but for now, you can search for the temporary conforming loan limits below. This increase is effective for loans originated between 7/1/2008 and 12/31/2008.

https://entp.hud.gov/idapp/html/hicostlook.cfm

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