Monday, February 18, 2008

Conforming Loan Limit

Both congress and the Bush administration have agreed to raise the conforming loan limit until the end of the year. This change is part of the economic stimulus package that was approved by congress recently.

For the greater Seattle area (Seattle, Tacoma, Bellevue) it looks like the new formula for determining this limit will be calculated based on the median home price. Fannie, Freddie and the FHA will be allowed to guarantee loans of up to 125% of that value.

From the information I've gathered the greater Seattle area has a median home price of $394,700, which would raise the conforming loan limit to $493,375.

Currently the difference between a conforming loan and a jumbo interest rate is about 1%, which is a lot. For example, a buyer who wishes to purchase a home with a 5% down payment with a 30 year fixed conforming mortgage at 5.75% for $437,850 would have a monthly principle and interest payment of $2,427. However if the purchase price of the home was $437,851 a jumbo loan would be required and the interest rate would likely be about 6.75%. Changing the month payment to $2,698. A difference of $271!

With the change to the conforming loan limit a buyer with a 5% down payment would be able to purchase a home for up to $518,000. Since this is a conforming loan the interest rate would be about 1% less than what is currently available, which could potentially save them $320 per month.

If you are considering purchasing a home for over $440,000 but under $518,000 it may be worth your while to wait until this change has taken effect. As more information becomes available on this topic I'll be sure to provide updates.

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