The maximum FHA, Fannie Mae, and Freddie Mac conforming loan limit will decline to $625,500 beginning Oct. 1, 2011, from the current $729,750 limit, though the majority of counties will fall far below the $625,500 maximum. The conforming loan limit determines the maximum size of a mortgage that FHA, Fannie Mae, and Freddie Mac government-sponsored enterprises (GSEs) can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment, increasing the monthly payment and negatively impacting housing affordability for California home buyers.
Under the new GSE loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by San Diego ($151,250), Sonoma ($141,550), Solano ($140,500), and Napa ($137,500) counties. Under the new FHA loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by Merced ($201,450), Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.
Regionally, Marin County would be impacted the most, with more than 12 percent of home sales rendered ineligible under the lower GSE loan limit, followed by Contra Costa (11.5%), San Mateo (10.7%), San Francisco (9.9%), Monterey (8.8%), San Diego (8.2%), Sonoma (7.9%), and Santa Clara (7.8%) counties. Under the lower FHA loan limit, San Francisco County would be impacted the most, with more than 14 percent of home sales rendered ineligible, followed by Santa Cruz (13.9%), Orange County (13.3%), Marin (13.2%), San Mateo and Ventura (both at 12.7%), Santa Clara (12.2%), San Diego (11.9%), Alameda (11.8%), Riverside (11.5%), and Contra Costa (11%) counties.
What does this mean to you and why is it important?
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.
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.
Data Source for Statistics and Limits: CAR