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Mortgage Loan Limits Set to Fall

August 10th, 2011

Many people in the mortgage industry are nervous about the impact that lower Fannie Mae, Freddie Mac and FHA loan limits will have next month. If you want to get approved for home refinancing act quickly. Soon, you may face more expensive jumbo loans that are harder to qualify for. That’s what loan professional Mathew Carson of First Capital Group Inc. tells his clients in San Francisco as he warns them about loan limit changes that will take effect October 1st. Conforming loan limits are not the only changes that are taking place, as HUD will roll out the 2012 FHA loan limits that will be significantly lower than limits for 2011.

The maximum amount for jumbo-conforming mortgages which are loans that vary between $417,000 and $729,750 and can be sold to Fannie Mae and Freddie Mac will fall in many parts of the country. The maximum loan limit will be reduced to $625,500. Anyone who wants to refinance or get a purchase loan of more than $417,000 but less than $729,750 is likely to be affected. “There are plenty of people in this range, and when the limit changes they are going to be priced out of the market,” says Carson. “We’ve reached out to all of our clients in that category, and I’m finding that people just don’t know that loan limits are shrinking.”

These loan limits are crucial in high-cost areas such as San Francisco, Los Angeles, New York and New Jersey. That’s because mortgage loans that go over the threshold set by Fannie and Freddie are considered jumbo mortgages, which generally carry higher interest rates, may require larger down payments and have more stringent underwriting guidelines. According to the National Association of Home Builders the decreased jumbo limits will affect more than 200 counties, and about 1.38 million owner-occupied homes would be pushed outside of the jumbo limits allowed by Fannie and Freddie. These government finance agencies temporarily raised their loan limits in 2008. The higher loan limits have been extended annually since then, but are set to expire Sept. 30.

Presently, consumers have access to FHA mortgages of up to $729,750 with 3.5% down. FHA mortgage limits also vary by county and will be lowered at the same time as Fannie Mae and Freddie Mac reduce their loan limits. Borrowers in high-cost regions will not be able to get a FHA home loan over $625,500 after the new limits go into effect.

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