Mortgage Rates Lower on Jumbo Loans

Congress has lifted the conforming loan limits in thousands of counties across the country. The government is allowing mortgage giants Fannie Mae and Freddie Mac to buy more — and larger – loans. And the FHA has rolled out its jumbo loan.

So what does it all mean for you? Well, if you’re a homeowner, or even thinking about becoming one, you may just find it’s easier to get approved for a loan.

Here’s why:

Let’s start with higher conforming loan limits.

The conforming loan limit is the maximum amount you can borrow before your mortgage is considered a jumbo loan, and therefore subject to higher interest rates because you’re now considered at a greater risk of defaulting.

$417,000 was the conforming loan limit across the country, regardless of where you lived. But, now that credit guidelines are much tighter, people living in areas where the average home value exceeds the $417,000 limit – like California – were having a heck of a time getting loans. And even if they could find one, the interest rate was so high, most folks were priced out of the market.

Congress did away with the flat conforming loan limit of $417,000. They replaced it with a new system where the loan limit for each county is based on its average home value.

The new limit is either $729,750 or 125% of the average home value – whichever is less for each individual county.

You can now get a jumbo loan with a rate that is just an eighth to a quarter-point higher than on a conventional mortgage, as compared to a full percentage point before the change.