Conformin Loan Limits Raised

Interest Rates just improved for home loans between $300,700 to $322,700! Why? Because the Federal National Mortgage Association (FNMA or Fannie Mae) and Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) announced this month that they would now buy loans up $322,700. These loan limits are even higher for 2 to 4 units.

Who are Fannie and Freddie? They are the big guns in the secondary mortgage market that operates on Wall Street. In most cases these are the two companies that determine what the interest rate will be for a home mortgage. Each day, as interest rates fluctuate with the various reports and news that happens, they determine the change in interest rates for mortgages. The process is similar to stock price fluxuations in a company.

So, what does this mean to us homeowners? With Fannie and Freddie raising the limits of loans that they will buy, interest rates for loans between the old limit of $300,700 and the new limit of $322,700 just got cheaper by a quarter to a half a point in interest. Or, put a more simple way, if you closed a loan at $322,700 at the old limit, the monthly payment would have calculated at 6% interest, or $1,934.75/mo. Today, that same loan could be calculated at 5.5% interest, or $1,832.26/mo. A savings of over a hundred dollars by the loan limit change.

To look at this from another angle, you now would need to make roughly $225 a month less to qualify for the same loan.

To take this a step further, more people can now afford to buy a more expensive home making home affordability available to a larger segment of the population.

If you are a home seller this is exactly what you want because now there are more people able to buy your home. If you are a homebuyer it makes the dream home that much more affordable.

The only downside is the effect it will have on inflation because more people are able to afford the same home. Those people that can will start paying more for that house.

Fixed interest rates for conforming loans (under $322,700) as of 12/20/02 (a.m.) are:
30 year fixed: 5.5 % (APR 5.78%) monthly payments are $1,832.26/mo.
15 year fixed: 4.875% (APR5.34%) monthly payments are $2,530.93/mo.