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High Balance Loan Limits Set to Expire
On September 30, 2011, the high balance loan limits are set to expire. Currently, for “high cost” areas, the high balance loan limit is set at $729,750. This limit was originally established as part of the Economic Stimulus package of 2008. This amount will be adjusted down to $625,500 for high cost areas. This reduction in the high balance loan limit could have dramatic impacts. Loans could be subject to tighter credit conditions.
For one, the interest rate you are securing will most likely be at a higher amount. For example, if you are shopping for a home and have determined that you will need a loan amount between $625,500 and $729,950 that loan will now be secured at a higher interest rate. As of this article, a jumbo loan rate is about ½% higher than a conforming 30 year fixed rate according to Bankrate.com.
Another impact is that a loan over the $625,500 mark will require a down payment of at least 20%. The option to put less than 20% down for loans between $625,500 and $729,950 will be no longer.
Both factors could mean weaker demand for homes in the high cost markets. This eventually could lead to downward pressure on prices.
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