March 11, 2008 - If you have a home mortgage in excess of $417,000, then your loan is classified as a "jumbo" loan. Typically, jumbo loans have higher interest rates than conforming conforming loans. But as of last week, the federal government temporarily increased the dollar amount for conforming loans. For some, the news could be the difference between being able to keep their homes or going into foreclosure.

Conforming loans are a rarity in many high priced markets. Just try to purchase a home in a good area of Los Angeles or New York City for less than $417,000. There is a very good chance that you won't be able to find a house, or even a condo, for that price. In California, the median price for a house is still $475,000 even though prices have dropped by 16.5% from their peak.

High prices have made conforming loans a rarity in many markets, and made FHA loans (which had even lower limits) virtually irrelevant. But under the new limits, both FHA and conforming loan limits will increase to as high as $729,750. This is well within the price range for many of the higher priced markets around the country.

The new conforming loan limits will not help everyone. To qualify, you will need to have at least 10% equity in your home and a credit score of 660 or better. You will also need to have a debt to income ratio of 45% or less and you will need to provide income documentation.

For those who do qualify, the benefits of refinancing can be significant. They are likely to include a reduction in interest rates and monthly payments.

This news is also good for people with good credit who are considering the purchase of a new home. Many lenders have tightened up their lending requirements so much over the past several months that even well qualified buyers have had difficulty getting access to funds at reasonable rates. Because conforming loans are still easily sold on the secondary market, many of these home buyers may find a loan easier to come by.

To take advantage of the new loan sizes, buyers and those refinancing need to act before the end of the year. This means that their loan will have to fund prior to the end of December. After January 1, 2009, conforming loan amounts will reset to $417,000. Borrowers also need to know that not all lenders can provide FHA loans, so they may need to shop for the appropriate lender to meet their needs.

by Jim Malmberg

Note: When posting a comment, please sign-in first if you want a response. If you are not registered, click here. Registration is easy and free.

Only registered users can write comments.
Please login or register.