High Balance Conforming and FHA Loan Limits to be Reduced after Summer

As of October 1, 2011, high balance loan limits in greater Seattle are set to be reduced from $567,500 to $506,000 for a single family dwelling for both conventional and FHA mortgages.   That’s a loss of $61,500.   This roll back is taking place across the country and will impact all counties in Washington.

Currently, someone buying a home priced at $700,000 in King County could put 20% down and not have a jumbo/non-conforming mortgage.  After September 30, 2011, the same home buyer will need to have 28% down payment (an additional $61,500) for the same scenario.   A home buyer not wanting to put more than 20% down and have a loan amount of the new limit of $506,000 will be able to purchase a home priced around $632,000.

With FHA financing, a home buyer in the tri-county area can buy a home priced at $585,000 with 3.5% down payment with the present loan limits.  After September 30, 2011, the same FHA home buyer who wants to use the allowed minimum down payment of 3.5% will be reduced to a sales price of $524,000.

This could have a dramatic effect on homes priced between $524,000 and $700,000 in our area as potential buyers will be forced to either come up with more down payment and/or use jumbo financing (which has tighter underwriting guidelines and higher rates than conforming or FHA).

If you’re a current home owner who has been considering refinancing and your mortgage balance is $500,000 to $567,500, I recommend taking action now.  Not only will your borrowing power be reduced but local home values may take a hit with the reduced financing options should Congress not extend the limits…I wouldn’t count on Congress (ever).

I wouldn’t wait until September 30, 2011 either.  The last time we phased into new loan limits, lenders were very unorganized…it really was a mess.   Some may adopt the new loan limits much earlier in order to avoid being stuck with a loan that exceeds the new limit (having a jumbo loan at a conforming rate) on their books.

I feel like Debbie Downer! 🙁

This entry was posted in Industry Talk, Mortgage/Lending by Rhonda Porter. Bookmark the permalink.

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445 NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

12 thoughts on “High Balance Conforming and FHA Loan Limits to be Reduced after Summer

  1. Important to note that this $506,000 is not something new. The limits were lowered before to this exact number of $506,000. They were raised as part of the “recovery” incentives back in 2009.


    Now that the horse is out of the barn, the spurs are going back up on the hook. We have to see where the market goes without incentives and recovery measures. Delaying that puts us on shifting ground indefinitely.

    Removing stop gap measures is the only way to get to a stabilized market.

  2. Ardell, you’re correct, the higher “high balance” loan limit has always been “temporary”… this horse has been out of the barn since last November when the 2011 limits were announced… it just seems that a lot of folks aren’t realizing that this is going to take place.

  3. I totally agree that it is newsworthy Rhonda, and thanks for posting it. I’m just hearing a lot of complaints around the internet about why would they lower them now…when in fact they are simply removing the temporary “hold” on lowering them that was placed in 2009.

  4. I would actually rather see the loan limits extended a bit longer for our area. When they did this the last time (Congress bounced around high balance loan limits once before) it left home owners with loans over $506k to $567k in a lurch.

    I don’t see the harm in allowing financing up to $567,500 or how reducing the limits to $506k helps our housing recover.

    For the record, I’m not complaining 😉 I’m just not seeing how this helps.

    In my opinion, if Congress and the GSEs really wanted to help housing recover, they would allow Fannie and Freddie to not require appraisals on rate-term refinances for borrowers who can document income/employment and have decent credit.

  5. It doesn’t “help housing recover”. I think that’s the point. Let the market go to where it needs to get to without “recovery” prop ups.

    “Help” should be geared to the needy. Once the home price goes over a half a million dollars…it’s hard to classify that group as “the needy”.

    I don’t disagree with your last point. I do disagree with waiting. People who can refinance to lower rates have had plenty of time to do that…and with this “fair warning” have plenty of time to do it before the lower limits go into effect.

  6. Ardell,
    There are people who need with all types of loan amounts. So you’re saying that folks with a loan amounts of $506+ to $567K should be penalized to help those with smaller loan amounts? There are plenty of programs for smaller loan amounts, such as FHA, USDA and VA will little to nothing down and lower credit score requirements. They have help. It’s the larger loan amounts that do not have help and that’s my point.

    Why they’re not refinancing now? Not everybody reads blogs (as much as I wish they all did!)… maybe job situation change and they’re not in position to refi based on qualifying for a certain period of time… perhaps they’re waiting for the home to appraise higher… many are uncertain of if they’re going to keep or sell their home too…and wait until the very last minute to make a decision.

    • We are seeing a little uptick in refinance biz due to the 30yr. fixed rates heading back down to around 4.625%-4.75% range. Also seeing purchases with ARM’s again. Refi’s from under $100K to jumbo’s.

      Go Thunder. eh, go m’s. Go Sounders!

      Have a good weekend.

    • Rhonda,

      Simple math. If the high balance conforming was $567,500 back in early 2007 when the median home price in King County was 25% to 30% higher, why wouldn’t it be reduced?

      The purpose of having a temporary “high balance conforming” between conforming and jumbo is to account for short term market value swings. When price swings up, the high balance conforming kicks in. When price swings down, high balance conforming kicks out.

      What was the median price of a home when “high balance conforming” started? When was the last time WA had only Conforming Loan Limits and Non-Conforming Loan Limits?

      …and while we are at it, why one price fits all for “King County”? What a joke!

      The median price for a home in Kent, Federal Way and Burien right now is about $210,000. Why should they have a conforming limit of $417,000 and a high balance jumbo to boot? By the 125% of median price standard, the conforming limit should be $262,500 there with no high balance allowance.

      $417,000 conforming limit should only apply to those areas of King County that have a median home price of at least $330,000 and high balance conforming should only apply to areas that have a median home price over $330,000.

      Compare that to a median home price of $495,000 in Bellevue, Kirkland and Redmond and the conforming limit should be $618,000 based on the 125% of median principle.

      The high balance conforming “break” should only apply in areas where the median home price is over the conforming loan limits.

      Treating King County as a whole is insane when the median price in one area is more than double the median price of another.

      • Treating loan limits by city would be a pain in the butt… USDA currently does this but I’d rather have that then all of high balance gone. When loan programs/limits are restricted, I think it limits our recovery due to lack of available financing and that’s what dropping the limit does.

        We’re possible set to have lower conforming limits in 2012.

        • Someone on twitter just answered that high balance loan limits started in 2008 when prices where 25% higher than now. If that is true, and they didn’t exist prior to 2008, prices have dropped to the point where they should not exist at all. Not talking refinances here. Maybe refinances should have different parameters than purchase loans.

          But as to purchase loans, prices have dropped to the point where high balance conforming should not be an allowance at all.

Leave a Reply