When getting a mortgage, there are two primary types of mortgages. One is called a conforming loan, which means that the loan amount is under the conforming loan limits. Conforming loans have the most attractive loan rates and qualification criteria because the loans are being purchased by large secondary market companies like Fannie Mae/Freddie Mac, or they are insured by government entities like FHA and VA. The current conforming loan limit for a single-family home in most cities is $417,000. The second type of loan is a jumbo loan, which is above those loan limits, and is issued by large banks or other loan investors. Typically jumbo loans are more costly or have more stringent qualification requirements like higher down payments or higher credit score requirements.
During the housing downturn, the government extended loan limits in certain high-priced housing markets like Seattle. Mortgage companies could issue a conforming mortgage in Seattle up to a balance of $567,500. Loans between $417,000-$567,500 are referred to as “conforming high-balance loans” or sometimes “conforming jumbo loans,” and carry better terms than jumbo loans, though inferior terms than loans of $417,000 and under.
The high-balance limits were issued temporarily and are currently set to expire on September 30, 2011, and in Seattle, our limits will go down to $506,000. Banks will want to make sure that their loans come in under that deadline, so to secure a conforming high-balance mortgage, you need to plan on closing your loan by mid-September, otherwise you will have to find a new jumbo loan product or potentially risk losing your loan altogether if you don’t qualify for a jumbo loan.
This is an important deadline to meet for certain borrowers. If your proposed mortgage amount is $506,000 or under, you will still qualify within the conforming loan limits and don’t have anything to worry about. However, if your proposed loan balance is between $506,000-$567,500, you need to make sure that you get your loan closed by mid-September.
These loan limits could be altered by Congress, but it is unclear on whether or not that will happen. Given the way these things typically occur, there may be a last minute scramble to resurrect the higher loan limits, but whether that has the political support necessary to pass is unclear.
To reiterate, if you are planning to take out a mortgage with a balance between $506,00-$567,500 in Seattle during August or September, you need to act now and work with your mortgage lender to make sure that you hit the deadlines.