How Will New Conforming Limit Affect Your Florida Home Loan?
Housing prices are rising across the state and the country. Potential buyers looking for a Florida home loan are wondering how this will affect their search. Moreover, the national providers of funds for mortgages have done something about the issue.
On January 1, a new conforming loan limit was enacted by Fannie Mae and Freddie Mac. It’s a record breaker. Why is this an important development? Because a raised Florida home loan limit is the maximum amount a mortgage can be before it becomes a higher-cost jumbo loan.
How borrowers will benefit from new home loan limit
To understand why this increase is good for borrowers, a bit of background is necessary. The conforming limit is set by Fannie Mae and Freddie Mac, the federally chartered companies that help keep the mortgage market healthy. They do this by purchasing mortgages from banks and other lenders and reselling them to investors.
Fannie Mae and Freddie Mac will only purchase mortgages that meet certain conditions, one of which is that the principal must be below the conforming limit. This limit is adjusted every year, if necessary, to reflect any rise or fall in average housing prices. A rise in the conforming limit helps Florida home loan borrowers to:
Avoid jumbo mortgages: Many lenders will approve mortgages higher than the conforming limit, but these loans - called jumbo mortgages - carry a slightly higher interest rate. The difference may be as much as half a percentage point, though it’s typically around one-eighth to one-quarter of a percent more than a fixed-rate conforming mortgage.
Jumbo home loans carry more risk to the lender and usually involve extra underwriting requirements, and these costs are passed along to you, the individual seeking a Florida home loan.
Save on interest payments: The big increase in the conforming limit is good news for home buyers, particularly those looking for affordable Florida home loans priced between $359,650 and $417,000.
In 2005, a mortgage of $400,000, for example, would have been considered a jumbo loan and would have carried a higher interest rate. In 2006, a loan that size is well under the limit and is therefore likely to carry a more competitive rate. For a 30-year fixed rate mortgage, the difference of a quarter of a percent works out to almost $64 per month.
Refinance your Florida home loan and save: If you’re a homeowner who took out a jumbo mortgage when the limit was lower, you may now be able to refinance and obtain a conforming mortgage at a lower rate.
The rise in the conforming limit will not necessarily affect the size of the Florida home loan for which you will be approved, however. Remember also that low interest rates shouldn’t tempt you into buying more home than you can afford.
