Yesterday the US Department of Housing and Urban Development announced an increase in the limit on the size of a mortgage that qualifies as "conforming". Conforming loans are mortgages that meet the Federal Housing Authorities standards and are backed by the US government. Conforming loans have lower rates than larger non-conforming or "jumbo" loans.
What the new limit means to physician families
Since physicians often have larger families and own bigger homes, this may mean your family could save several thousand dollars a year by refinancing your jumbo loan.
Before the change, a physician family trying to refinance a $600,000 mortgage might have been faced with a 30-year loan rate of 6.9%, while a family refinancing a conforming loan, maybe one for as much as $400,000, would have seen a 30-year rate of only 5.9%.
After the change, the larger loan would have been issued at the same low rate as the smaller one.
Why "jumbo" loans have jumbo rates
Big loans that exceed the FHA's limits (now as high as $729,750) are not backed by the US government. That means when a bank or broker issues a loan like this and re-sells it, they cannot re-sell it to lenders government-sponsored entities like Fannie Mae or Freddie Mac. No, instead these loans must be sold to Wall Street, and the street is a bit gunshy about buying bigger loans in a smaller housing market. Mortgage invetors are demanding a premium interest rate in order to be enticed into buying bigger loans.
How can physician families take advantage?
Your ability to benefit from this news has much to do with where you live (or will live). If you live in a "high cost" county in high cost states like California and New York, there's a good chance you'll benefit. And if you live in Hawaii or Alaska, the limits exceed $800K. If you do not live in a high-cost county, the old jumbo limit of $417,000 still applies.
Time is running out
The new loan limits are part of The Economic Stimulus Act of 2008 and they're set to expire on January 2009, when the FHA's maximum loan limit will return to $362,790 (unless Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill).
To find out if you may qualify for a lower rate on your loan, check out the FHA Loan Limits for your city, or contact your favorite mortgage broker.