US Extends High Conforming Loan Limits

There is good news to rave about in expensive housing markets. US President Barack Obama has recently signed legislation with a provision for the extension of conforming loan limits in higher-cost-areas through 2011. This means that homebuyers as well as homeowners living in expensive housing markets would continue enjoying a break on high interest rates when they borrow to buy a home or refinance a current mortgage.

Such conforming loans have cheaper interest rates compared to usual or non-conforming loans, which are interestingly called ‘jumbo’ mortgages by many. The government backs such loans to make them assume lower rates. To illustrate significant differences in comparison, 30-year conforming loans come with average interest rates of 4.45% while counterpart non-conforming or jumbo loans have a 5.14% interest rate average.

This extension comes at a time when federal tax credits for homebuyers have already expired. Analysts note that cheaper interest rates are very much crucial to a sought-after recovery of the housing industry from a downturn. Such limits widely apply in housing hotbed areas like New York, Hawaii, California, and the US Virgin Islands.

Meanwhile, legislators have recently moved to maintain maximum loan size guarantees from Freddie Mac, Fannie Mae, and FHA or the Federal Housing Administration. Maximum loan size in high-cost or expensive housing markets are now at a level of $729,750. If they failed to do so, the limits would fall to around $625,000. Comparatively, the limit was at $417,000 in 2008 and in the preceding years.

Congressional representatives are currently applauded for their successful efforts to set another year of extension for higher loan limits. Analysts said home loan borrowers definitely would find it more difficult to refinance homes, while new home buyers would find it harder to obtain necessary financing without the limits and the conforming loans with lower rates. However, numerous mortgage lenders, property agents, and homebuilders lobby to maintain upper limits in expensive markets in an effort they claim to keep the housing market up.

Many homeowners who carry jumbo mortgages pay interest rates of about 6%. Interest rates for jumbo refinance loans are at fixed interest rates of around 5%. Such conforming loans could benefit numerous homeowners who prefer to repay their jumbo mortgages by taking conforming, low-interest loans for refinance activities. Thus, despite tighter restrictions on loans, many borrowers could still possibly refinance for less costs.