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Jumbo limits will fall on refinancers

Jumbo Loan Limits » Jumbo limits will fall on refinancers

If you want to refinance a big mortgage, act quickly. Soon, you may face more expensive jumbo loans that are harder to qualify for.

That's what mortgage broker 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 Oct. 1.

The maximum amount for "jumbo-conforming" loans -- which are mortgages that vary between $417,000 and $729,750 and can be sold to Fannie Mae and Freddie Mac -- will drop in many parts of the country. The maximum limit on those loans will be reduced to $625,500. Anyone who wants to refinance or get a purchase mortgage 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 about (the upcoming changes). But the ones that do know are taking action."

Why jumbo limits matter and who's impacted

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.

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, according to the National Association of Home Builders.

Fannie, Freddie and the Federal Housing Administration temporarily raised their loan limits in 2008. The higher caps have been extended annually since then, but are set to expire Sept. 30. Housing industry lobbyists have asked Congress to extend the current limits for another year or two, but with a few weeks left before the change takes effect, borrowers must play it safe and act soon, Carson says.

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Don't wait until the last minute

Depending on your lender, it may take two to several weeks to close on a mortgage after you apply to refinance. Borrowers must close by Sept. 30 to avoid facing the lower loan limits, says Michael Moskowitz, president of Equity Now, in New York City.

"If you apply by the beginning of September, that should be enough time to close, but it really depends on how long the lender will take," he says.

Lower limits could mean no mortgages for FHA borrowers

For some, especially those with less-than-perfect credit and little equity in their homes, missing this deadline could mean not being able to get a mortgage loan at all.

In many counties, the jumbo loan ceiling is the same as the limit imposed on FHA-insured mortgages. FHA limits also vary by county and will be reduced at the same time as jumbo limits.

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