Understanding the Higher Loan Limits – CMPS
Understanding the Higher Loan Limits
We have seen a whirlwind of legislative activity these past few weeks! There is much confusion
surrounding the recently passed Economic Stimulus Package and higher loan limits.
Unfortunately, the new law can be confusing to decipher, and not everyone will benefit. For this
reason, we have provided an outline below that clarifies what this new law means for you and how
you can benefit from the higher loan limits.
Description and Overview:
An economic stimulus package just passed Congress on February 7, 2008 and was signed into
law by the President on February 13, 2008. This new law is effective immediately and includes a
temporary increase in both the FHA and conforming loan limits to as high as $729,750 in high
cost areas. This means that the interest rates on many mortgages will go down because these
loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the Federal
Housing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances
lower than $200,160 – $362,790, depending on the county where the property was located. Also,
Fannie Mae and Freddie Mac were only allowed to purchase loans with balances at or below
$417,000. This resulted in limited options and higher financing costs for those with loan balances
above these limits. The new law substantially increases these limits in high cost areas and opens
up new options and lower financing costs for many people.
How to Determine “High Cost” Areas
There are two things you must know in order to determine if you are in a high cost area:
1. Understanding the Formula
If 125 of the local area median home price exceeds $417,000, the temporary loan limit would be
that 125 of the median home price with a cap of $729,750. Here are three examples to illustrate
If the median home price in your area is $225,000, 125 of that number is $281,250. This is
below the current $417k conforming loan limit. Therefore, the conforming loan limit inyour area
will not change. However, if $281 ,250 is greater than the FHA limit in your county, your FHA limit
will go up to $281,250.
If the median home
price in your area is
$375,000, 125 of that
number is$468, 750.
This is above the
conforming loan limit.
conforming loan limit in
your area WILL change
and go up to $468,750. This number is also higher than the highest FHA loan limits, so therefore
your FHA loan limit will also go up to $468,750.
If the median home price in your area is $650,000,125 of that number is $812,500. This
number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in
your area will increase to highest allowable amount under this new law which is $729,250.
2. Determining the Median Home Price in Your Area
As required by law, on March 6, 2008, the Secretary of Housing and Urban Development (HUD)
published the median house prices and new loan limits for the various areas across the country.
Contact me today and I’ll research your info and let you know exactly what the median home
price and loan limits are in your area and how you can benefit from this information.
What do all the dates mean?
There is some confusion because the bill has a provision that says the higher limits are only
effective for loans originated between July 1,2007 and December 31,2008. In short, the reason it
is effective beginning July 1, 2007, is because the credit crisis started to unfold in July and August
of 2007. Mortgage market conditions rapidly deteriorated almost overnight. Many secondary
market investors suddenly refused to purchase loans that couldn’t be sold to Fannie Mae and
Freddie Mac. (For more info on how this process works, please see the article entitled Saga of the
US Mortgage Industry.)
Unfortunately, many mortgage banks had already funded these loans in their own portfolio or
through their warehouse lines of credit. Their intention was obviously to sell these loans on the
secondary market after the loans were funded. However, the credit crisis prevented them from
doing so, and they were stuck holding these loans in their portfolio. The July 1, 2007 date in the bill
is designed to allow these lenders to unload these mortgages and sell them on the secondary
market to Fannie Mae and Freddie Mac.
However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions! In
other words, it doesn’t matter when the loan you are refinancing was originated. The old loan could
have been originated in 2005, 2006 or anytime before or after July 1, 2007 and it would have no
effect whatsoever on your current purchase or refinance transaction. If you are financing a new
loan today, whether it is a purchase or refinance transaction, that loan is subject to the new limits
setforth in the bill.
The other date of December 31,2008 means that the old limits will go back into effect after this
year. In other words, now is the perfect time to buy a new home or refinance your mortgage
because after this year, your costs will be higher and your options more limited again.
When does this all go into effect?
Immediately! However, Fannie Mae, Freddie Mac and
various lenders have different policies as to how these
loans are priced and underwritten. That is why it is
imperative that you work with a Certified Mortgage
Planning Specialist who is committed, qualified and
equipped to give you timely information and expert
guidance every step of the way.
Contact me today for a complimentary consultation. I can look up the new loan limits in your area
and see whether you can save money in any way. Also, please pass along this update to anyone
you know who may be able to benefit, and I’d also be happy to look up the new loan limits in their
area and discuss with them whether they could save money.
Robert Phillips, C~1PSK
Preferred Empire Alorrguge
200 Broadhollow Road
Melville, NY 11747
6315475151 x208 alternate