Conforming Loan Limit Increase

In conjunction with the stimulus package on its way to the President’s Desk, a new conforming loan limit is on its way in our area. The final legislation effectively limits the increase to certain high cost areas including California, Boston, NY, and metro DC. In our area, the limit will be $562,500, up from $417,000, for the remainder of 2008 only.

The impact of this generally will mean lower rates, and perhaps easier refinancing, for loans between the old limit and the new one. However, the actual rate differential between this new “tier” and “original” conforming loans (still below $417K) remains to be seen; the rates likely won’t be equal because of some market constraints. Namely, the temporary nature and limited geography means lower volume and lower trading liquidity, which equals lower demand for these types of securities. So will it help? Yes. Dramatically? We’ll see.

Read more: Why Didn’t the Fed Cut Impact Mortgage Rates More?


2 thoughts on “Conforming Loan Limit Increase

  1. Lots has changed since the date of this post, but I notice it continues to get a lot of hits. I’ll post some more recent links to good articles for your reference. Here’s a good one on the “jumbo conforming” limits and all the limitations that go along with them:

  2. Another area of confusion I get lots of questions on–how this relates to the recently increased FHA loan limit. In the DC metro area, the new FHA limit is $729,950 (up from a largely useless $300K-ish limit prior.)

    FHA is a great low-down-payment option–only 3%, whereas most conventional products in our area are now requiring 10% thanks to the Fannie/Freddie “declining market” label slapped on the entire region.

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