Jumbo mortgage limits change

The new upper limit for conforming mortgages in 2003 will be $322,700. The announcement by Fannie Mae and Freddie Mac means good news to people who plan to take out mortgages between $300,700 and $322,700 in the next few weeks because they will be able to take advantage of lower interest rates than were previously available.

Conforming mortgages tend to have lower rates than jumbo mortgages. For example, in Bankrate.com's weekly national survey of large lenders, conducted Nov. 20, the 30-year fixed rate for conforming mortgages averaged 6.08 percent. The average rate for jumbo mortgages was 6.42 percent -- about one-third of a percentage point higher.

The conforming limit in 2002 has been $300,700 for single-family owner-occupied homes.

Consider how the change affects someone who plans to get a $322,000 mortgage for 30 years. That's a jumbo mortgage in 2002, but a conforming mortgage in 2003. At a conforming rate of 6.08 percent, principal and interest on a $322,000 loan would cost $1,947.15 a month; at a jumbo rate of 6.42 percent, principal and interest would cost $2,018.35 a month.

That's a savings of $25,632 over the life of the loan -- enough to buy a Sharp PZ-50HV2U 50-inch plasma TV ($15,000), a Pioneer VSX-49TX THX Ultra 2 audiovisual receiver ($4,200) and a set of six Pioneer TX-series speakers plus subwoofer ($3,475) -- with money left over for dozens of DVDs!

At least one lender -- Quicken Mortgage -- announced that it would take applications for the new loan limits immediately. Other lenders might follow suit, while some lenders will apply the new loan limits only for mortgages that close in 2003.

Conforming loans meeting certain credit standards can be bought, packaged and sold by Fannie Mae and Freddie Mac, the two biggest buyers of mortgages. Each year, Fannie and Freddie update the limit for conforming loans based upon the change in the average home price as calculated by the Federal Housing Finance Board. The board compares prices of homes sold in October from the previous October.

The result this year, according to Fannie Mae and Freddie Mac, is a 7.3-percent increase in the conforming limit.

The limit of $322,700 applies to first mortgages on single-family homes in the continental United States. The limit will be $484,050 in Alaska, Hawaii and the U.S. Virgin Islands.

Limits for multi-family homes will increase, too. In the continental United States they will be:

• $413,100 for two-family residences;
  
  
• $499,300 for three-family residences;
  
  
• $620,500 for four-family residences.

The limits are 50-percent higher in Alaska, Hawaii and the U.S. Virgin Islands -- a fact that doesn't sit well with people who live in places with high-cost housing such as Boston, Long Island, New York City and its suburbs in Westchester County, and most of coastal California.

The updated limits for conforming loans affect the limits for Federal Housing Administration loans, too. The base FHA loan limit will increase to $154,896 in 2003. The FHA has higher limits in high-cost areas and will top out at $280,749.