Lower limits mean more jumbos
Borrowers who live in a relatively expensive housing market and who want a loan of more than $625,500 will pay more for their mortgage later this year.
Effective Oct. 1, the top limit for conforming loans is set to drop from the temporary $729,750 to the general $625,500 in high-cost housing markets. Conforming loans are eligible for sale to Fannie Mae and Freddie Mac, and generally have the lowest rates. When the limit drops, borrowers who want a bigger loan will have to get a jumbo, which entails a higher interest rate and tighter guidelines to qualify.
Borrowers have a few options to contain the cost, according to Ginny Ferguson, president of Heritage Valley Mortgage in Pleasanton, Calif.
- Getting a loan before the limit drops.
- Making a larger down payment.
- Bringing cash into a refinancing.
- Taking out two loans to keep the first lower than the limit.
Loan limits in lower-cost housing markets also may drop in the future due to lower median home prices on which the limits are based, Trepeta says. That suggests some borrowers in those markets could be pushed into more expensive loans as well.