Conforming loan limits to stay unchanged next year
Fannie Mae and Freddie Mac – the two government sponsored enterprises that buy most of the mortgages in the country – announced this month that the conforming loan limit of $417,000 will remain unchanged through the first nine months of 2011.
That announcement was repeated in one media outlet after another shortly after it was made, but here’s the thing – most Arkansans don’t have to worry about it. Still, the announcement provides an excellent opportunity to discuss the issues of conforming loan limits, what they mean to most consumers and just what, exactly, a jumbo loan is.
The conforming loan limit is simply this – if a loan is above that limit, Fannie Mae and Freddie Mac won’t touch it. People purchasing homes that cost more than $417,000 are looking at a jumbo loan, which is a different breed of cat in the mortgage world.
We’ll get to jumbo loans in a minute, but it’s worth mentioning that a conforming loan generally carries the best interest rate with it. When we talk about how great it is that rates on 30-year, fixed interest loans have been hovering around historical lows of 4.5 percent or better, we’re really talking about rates on conforming loans.
The reason people rarely talk about interest rates on jumbo loans in this state is that most people simply don’t have to worry about them. It’s a rare thing, indeed, for a house to cost more than $417,000 in a state where the average sales price of a home is $150,000 or less.
When people talk about what a bargain homes in Arkansas are compared to other parts of the country, that’s exactly what they mean – buyers get a lot of bang for the buck here in the Natural State. Want proof? Prices in some parts of the country are so high that the conforming loan limit is as much as $729,750. Why? Because homes are so expensive in some areas that such a ceiling is necessary to insure buyers can get mortgages backed by Fannie Mae and Freddie Mac and the interest rates that come with them.
In Arkansas, however, those pricey homes are out of the ordinary. There are some out there, of course, but mortgage bankers and Realtors alike will tell you those homes make up a very small percentage of their businesses.
The people who do purchase those homes costing over $417,000 are looking at higher interest rates. That makes sense, of course, as lenders are taking on more risk when they write a jumbo mortgage.
In mid-November, the national Mortgage Bankers Association reported the average rate on a 30-year, fixed interest conforming mortgage was 4.33 percent. Meanwhile, the interest rate on a 30-year, fixed jumbo mortgage was around 5.25 percent.
Still, that’s a pretty good rate – 5.25 percent on a jumbo mortgage is about as rare as 4.33 percent on a conforming loan. Think about that if you’re in a position to purchase that pricey house you’ve always wanted. No one knows how long low interest rates and downward pressure on home prices will last, but there’s one thing for sure – those buyer-friendly conditions won’t be around forever.
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.