Calculating the Costs of Higher Loan Limits

By Sheryl Landrum
Calculators for Mortgages Columnist

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Consumers cheered last month when the limits on jumbo mortgage loans went from $417,000 to up to $729,750 in the highest home priced areas. In the past year, the difference between interest rates for conforming loans and jumbo mortgages had reached new highs. Whereas a borrower had previously been able to calculate the difference in mortgage interest between a conforming loan and a jumbo at .25-.5%, this difference in mortgage interest rates grew to 1.5-2.5%.

 

Interest Rate Increase Means Unaffordability

Mortgage calculators showed that far too many would be unable to afford home loans with this interest rate increase. Now, with the increase in home loan limits, many anticipated a drop in interest rates for loans over $417,000 and an increase in purchase power.  However, instead of inciting a refinance, or home purchase, boom, lenders are finding it even harder to get home loans for their borrowers. What now?

Jumbo Conforming Mortgages Come With Restrictions

Mortgage investors are still trying to protect themselves and guard against future mortgage foreclosures. And redefining a $700,000 mortgage as "conforming" doesn't make it suddenly less risky to them. So they are still requiring higher rates to compensate them for the real risk of lending at these amounts.

Consumers looking for mortgage loans at these higher amounts will not find it much easier than a few months ago. Here's what you need to know before taking out a higher loan amount, even if it is labeled "conforming" by Fannie Mae and Freddie Mac.

• You may need a minimum of 10% down unless you are getting FHA or VA financing.
• Rates for conforming loans above $417,000 are generally higher than those at or below that threshold.
• If you live in a distressed, or declining, market area, expect your lender to take a minimum of 5% of your property's appraised value for loan approval purposes. Interest rates offered will also rise.
  

As you see, while the government has raised the limits on conforming loans in order to stimulate the economy, nothing forces the lenders or investors who buy mortgage loans to join in willingly. If considering a new home loan, find a reputable lender to help you navigate through the lending process; right now, it is ever changing



About the Author
Sheryl Landrum is a Loan Officer in San Diego, California and a freelance writer specializing in mortgage issues.