If you happen to live in one of the more expensive regions of the country, take note.
Come October 1, the temporarily elevated conforming loan limit for home mortgages will drop from as high as $729,750 to $625,500.
While the new limits will vary by market based on area home prices, some major metros will see a reduction of more than $100,000.
For example, in pricey Los Angeles, homeowners will see the maximum conforming loan amount fall a whopping $104,250.
Why It Matters
As a result, your once “conforming mortgage” could soon become a jumbo loan, with mortgage rates on the latter pricing about half a percentage point or higher than the former.
So instead of enjoying an interest rate of 4.00% on your home loan, you may be stuck paying 4.50% or higher for the same mortgage next week.
Conforming mortgages are eligible for purchase by Fannie Mae and Freddie Mac, making them more marketable to investors and thus cheaper for consumers.
Along with that, they’re easier to qualify for, and require smaller down payments than their jumbo brethren.
What You Can Do
While it may be too late to snag a larger conforming mortgage, all hope is not lost.
If possible, consider bringing more money to the table to keep your loan amount at or below the new loan limit.
You may also be able to break up your loan into a first and second mortgage, keeping the first below the new conforming limit.
This should make qualifying easier and will certainly result in a lower interest rate, which could save you a lot of money over the years.
Either way, don’t fret. Lenders have slowly been increasing their appetite for jumbo loans, and will likely become more accommodating in light of this change.
On top of that, only about one per cent of loans extended to homeowners over the past three years would have been affected by this change, so most of us won’t even notice.