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What The New Conforming Loan Limits May Mean To You

The $168 billion economic stimulus plan signed Wednesday includes a temporary increase to conforming loan limits in some parts of the country.

Currently, many homeowners whose loans exceed $417,000 are paying higher interest rates because their loans are not securitized the way that smaller loans are.

The loan limit increase is intended to make housing more affordable in certain "high cost" areas around the United States. 

However, the loan limit changes are not immediate.  The stimulus package grants HUD 30 days to determine which metropolitan areas should be designated as "high cost" and it should take another few weeks for Fannie Mae and Freddie Mac to remodel their mortgage pricing engines.

All told, it could be mid-April before the new limits are in place.

Author's Note: There is a lot of speculation about which areas will be designated as "high cost" and nobody knows for certain until HUD decides.  Rather than misreport the facts, we'll save our coverage until something is concrete.   However -- if you're in a "high cost" area, you probably already know it.

When the new limits are official, though, expect that many homeowners will take advantage.  That will lead to underwriting delays because mortgage refinance activity will surge.

Therefore, consider being proactive about your financing options if:

1. You suspect you live in a high-cost area
2. You have liens on your home exceeding $417,000

If you don't live in a high cost area, you can't take advantage of the new loan limits; and if your outstanding liens total less than $417,000, you won't want to be helped.

Converting from a jumbo home loan will not be appropriate for everyone, but it will be right for some.  Get personal advice and figure out what's best for you.

And then hope the HUD fingers your neighborhood as high cost.