If you need to borrow more than $417,000 to buy a home or refinance your existing mortgage, you may be in luck. That's because the economic stimulus package, passed by Congress and signed by President Bush, contains a hefty hike in the size of mortgages that two government-sponsored mortgage-finance corporations, Fannie Mae and Freddie Mac, can buy from lenders.
Currently, Fannie Mae and Freddie Mac aren't allowed to buy these so-called "jumbo" loans, even in most areas where housing is very expensive. That means lenders can't sell loans that exceed the $417,000 conforming loan limit to investors as easily as they can sell smaller loans. As a result, these larger loans tend to have higher interest rates.
Now, though, Fannie Mae and Freddie Mac will be allowed to buy loans potentially as high as $729,750, and that could result in lower interest rates. If you live in a high-cost housing area, you might be able to save hundreds of dollars each month on your mortgage payment.
Nothing is ever certain with respect to interest rates. But if you want to buy a home in a high-priced market, the higher loan limits may enable you to borrow more money at a lower interest rate. Or if you want to refinance an existing jumbo mortgage, you may be able to do so more easily and, again, at a lower interest rate. What’s more, if you want to sell a costly home, more buyers may be able to borrow enough money to buy it.
The stimulus package also raises the limits on loans that can be insured by the Federal Housing Administration. The current maximum FHA limit is $362,790.
None of the new loan limits has been announced yet because the calculations are complicated and the amounts will vary based on geographical areas. In some high-cost housing markets, the loan limit may be as high as $729,750. But no matter where you live, be prepared to act quickly since the higher amounts are set to expire at the end of 2008, unless Congress extends that cutoff date.