With the passing of HR5140, Congress and President Bush recently raised the conforming mortgage loan limit to $729,750 from the existing $417,000 (but only for certain areas and only till the end of this year--12/31/2008). However, this may not help rates as much as people have anticipated: the reason being the lenders will need to take on more risks. Some example areas in CA that are affected by the new limit are listed below (a factor of 1.25 x existing market value is used to set the new limit: with $729,750 being the upper limit):
(Reported by Stanford Group Company 1/25/08 - Markets where Fannie and Freddie Would be Allowed to Securitize Larger Loans Based on National Association of Realtors Median Sales Price Data)
|Metro Area||State||Q3 2007||Median x 1.25||New Limit|
|Los Angeles-Long Beach-Santa Ana||CA||588,400||735,500||729,750|
|San Jose-Sunnyvale-Santa Clara||CA||852,500||1,065,625||729,750|
- Jumbo-conforming mortgages have rather strict loan-to-value limits. If you're getting a loan to buy your principal home, you can't borrow more than 90 percent of the home's value if you get a fixed-rate loan, and you can't borrow more than 80 percent of the home's value if you get an adjustable-rate loan.
If you're refinancing, you can't get a first-lien mortgage of more than 75 percent of the home's appraised value. The combined amount of all mortgages, including home-equity debt, can't exceed 95 percent of the appraised value. These loan-to-value ratios for refinances apply to both fixed-rate and adjustable-rate loans.
- You can do only a "limited cash-out refinance," which means that you can borrow a little bit more than your current balance, but only to pay closing costs or borrow a round number (i.e., borrow $530,000 instead of $528,838). You can't do a cash-out refi to pay off a home-equity loan or home-equity line of credit, or to walk away from the closing table with a check for more than $2,000.
- You have to have a credit score of 660 or higher. If you're getting the loan to buy a house, and you're borrowing more than 80 percent of the home's price, the minimum credit score is 700.
- For second homes and investment properties, the maximum loan-to-value is 60 percent, and the minimum credit score is 660.
- It has to be a one-unit property. That includes a single-family house, of course, and it also includes condominium units. It excludes duplexes and triplexes where the owner rents out the other units.
- Because you can't get a cash-out refi to pay off home-equity debt, the second-lien holder has to sign off on the refinance and agree to remain in the second lien position.
Some home-equity lenders, most prominently National City Mortgage, are refusing to agree to remain in the second-lien position, forcing borrowers to either pay off their home-equity debt or forgo refinancing.
- You can't have had any late mortgage payments in the last 12 months. A late payment is defined as 30 days or more late.
- The debt-to-income ratio is capped at 45 percent. That means if you have a gross income of $200,000 a year, the total debt payments can't exceed 45 percent of that, or $90,000. All ARMs are qualified based on the fully indexed rate.
- Your life has to be an open book. You have to permit an appraisal with interior and exterior inspections, and fully document your income and assets.
- If the loan-to-value exceeds 80 percent, you have to buy mortgage insurance.
- You can't get a construction-to-permanent loan under the jumbo-conforming amount.