The most popular home loans in the US are about to get smaller and applicants who want bigger loans must act soon to avoid higher mortgage costs and fewer options.
Ken Trepeta, Director of Real Estate Services at the National Association of Realtors, said that lower mortgage limits mean that loan applicants with large mortgages will have to “pay a significant amount more — either in down payment or interest rate — because they can’t qualify for a Fannie / Freddie or FHA loan.”
Loan limits vary by US county and so will the changes. Each county in the US has two maximum loan sizes — the conforming loans and the mortgages insured by the Federal Housing Administration (FHA).
Ginny Ferguson, President of Heritage Valley Mortgage, said the lower mortgage limits will have a significant impact on borrowers in high-cost residential markets.
“The folks who currently can qualify with full documentation for a loan of US$700,000 or US$725,000 are no longer going to have that option,” she said.
“If they’re doing a refinance and their loan amount is higher than US$625,500, they’re going to have to come into escrow with money to pay down their loan amount. Or if they’re trying to purchase a property, they’re going to have to put down a larger down payment.”
A jumbo may be an alternative but many jumbo lender experienced a meltdown during the housing crises and are “still not functioning very well,” said Dale Di Gennaro, President of Custom Lending Group.
This means that borrowers will have to face tighter guidelines to qualify and interest rates will likely be between 0.5 and one percent higher than the rate on an otherwise comparable but smaller FHA conforming loan.