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Conforming loan-limit increase leads to savings

This loan limit is referred to as the "conforming" loan amount. Freddie Mac and Fannie Mae have just officially raised this limit to $322,700 for 2003 for a single-family home and is effective for all new loans on Dec. 2. Loan amounts that are within the conforming limits have lower interest rates than loans above that limit.

That is a 7.3 percent increase from this year’s limit of $300,700. The new "conforming" loan amounts are higher for multiresidential units also: for two units it is $413,100; for three units it is $499,300 and for four units it is $620,500. See the accompanying table for an historical perspective.

Conforming loan limits
Year Loan Limit

1985 $115,000

1986 $133,250

1987 $153,100

1988 $168,700

1989 $187,600

1990 $187,450

1991 $191,250

1992 $202,300

1993 $203,150

1994 $203,150

1995 $203,150

1996 $207,000

1997 $214,600

1998 $227,150

1999 $240,000

2000 $252,700

2001 $275,000

2002 $300,700

2003 $322,700

Most of the nation’s 15- and 30-year, fixed-rate loans are sold to Freddie Mac and Fannie Mae because they have the lowest rates. Loans larger than the conforming limit are called "jumbos" and must be sold to other investors whose rates are typically .375 to .625 percent higher than 15- and 30-year, fixed-rate conforming loans.

A .375 percent lower rate translates to a $78 per month savings for a $322,700 loan. Lower payments mean home buyers can qualify for more expensive homes. The conforming loan amount is set at the end of each year for the following year and is based on a percentage of the price of the average home sold nationwide in October. Although this increase represents a significant rise in home prices between 2001 and 2002, it is not representative of the increase in home prices that we have experienced in Santa Cruz County.

Due to the higher cost of homes in Hawaii and Alaska, the conforming loan amounts are 50 percent higher there. If California were included in that same "expensive home" category (as it should be), home loans would be even cheaper for thousands of California homeowners.

Peter Boutell is a mortgage consultant with a local mortgage company. Send questions to "Lending A Hand," 1535 Seabright Ave., Santa Cruz, CA 95062, or fax to 425-1044. E-mail may be sent to Peter@SantaCruzHomeFinance.com.

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