California Realtors: Conforming Loan Limit Drop Will Hamper Recovery

June 23, 2011 No Comments »

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The California Association of Realtors warned today that a drop in the conforming loan limit, set to take place on October 1st of this year, will hamper the housing recovery.

Assuming Congressional action isn’t taken before that time, the loan limit will fall back to $625,500 from as high as $729,750, meaning many more prospective homeowners will require pricier jumbo loans.

The loan limit applies to conventional mortgage loans as well as FHA loans, so there’s little way around it unless homeowners put more money down at closing.

Those looking to refinance may also be impacted by the lower loan limits, especially if they lack home equity.

“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,” CAR said in a release.

“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.”

Back in the day, homeowners could skirt the conforming loan limit, which was just $417,000, by breaking up their loan into a first and second mortgage (combo loan).

But with secondary financing so difficult to find, most borrowers will be subject to higher mortgage rates, assuming they can even get approved.

At the same time, larger loan amounts carry with them higher risk, so we can’t ignore the difference forever…housing recovery or not.

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