I'm working with a couple in Seattle who are looking at refinancing their current adjustable rate mortgage to a 30 year fixed.  Their proposed amount will be about $560,000 for a conforming high balance mortgage.  If they wait too long to start the refinance process, this transaction will not be eligible to be a conforming high balance mortgage as the loan limits in King County are dropping to $506,000. Although Fannie Mae states the roll-back in conforming loan limits is based on Notes dated prior to October 1, 2011, lenders will implement their own deadlines well in advance in order to avoid being caught holding a mortgage they can no longer sale as conforming. 

I know I've been writing about the pending deadlines a lot…whether or not you are for or against the reduction in loan limits, in my opinion, this will dramatically impact area home owners. 

What's the difference between jumbo (non-conforming) and conforming high balance mortgages?

• Mortgage rates for fixed jumbo products are about 0.5% higher.  A higher rate equates to a higher mortgage payment which of course means it's tougher to qualify for.
• Most jumbo loans require a low-mid credit score of 720 or higher.  If a spouse has a mid-credit score of 719 or lower, and nothing can be done to rescore, you may not qualify for a jumbo loan.
• Most jumbo loans have a maximum loan to value of 80%.  Some of our lenders will go up to 85% using a second mortgage, however they require a 720 or higher credit score.
• Jumbos tend to require the borrower has more assets in reserves than a conforming high balance mortgage.

Remember, it's not just conforming high balance loan limits that are dropping in a few weeks, FHA loan limits are too.

Many home owners who do not start the refinance process now are going to discover they no longer qualify for a refinance or the rate is not as attractive to where it makes sense.  Some who do qualify may wind up considering an adjustable rate jumbo in order to have an improved rate for a fixed period of time.

What loan amounts are soon going to be classified as a "jumbo"? It depends on which county in Washington your home is located in:

King, Pierce and Snohomish Counties: 

• Conventional loan amounts between $506,001 and $567,500.
• FHA loan amounts between $506,001 and $567,500.

Kitsap County:

• Conventional loan amounts between $417,001 and $475,000.
• FHA loan amounts between $307,050 and $475,000.

Jefferson County:  

• Conventional loan amounts between $417,001 and 437,500.
• FHA loan limits between $322,001 and $437,500.

San Juan County:

• Conventional loan amounts between $483,001 and $593,750.
• FHA loan amounts between $483,001 and $593,750.

Clark and Skamania Counties:

• Conventional loan amounts between $417,001 and $418,750.
• FHA loan amounts between $362,251 and $418,750.Jefferson County

The following counties do not have "high balance conforming" loan limits.  They will be seeing adjustments in FHA loan limits and have a short window to take advantage of these loan amounts:

Benton and Franklin Counties: FHA loan limits between $271,051 and $275,000.

Island County: FHA loan limits between $316,251 and $381,250.

Kittitas County:  FHA loan limits between $271,051 and $328,750.

Mason County:  FHA loan limits between $271,051 and $310,000.

Skagit County:  FHA loan limits between $295,551 and $373,750.

Thurston County: FHA loan limits between $293,251 and $361,250.

Whatcom County: FHA loan limits between $304,751 and $375,000.

If you're considering a mortgage with a loan amounts addressed in this post in any of these Washington counties, please don't delay your refinance or you may not be able to take advantage of the benefits that conforming or FHA loans provide (better rates and easier underwriting guidelines).  Fannie Mae has indicated that we may see loan limits further reduced effective 2012 (we won't have more information until around November of this year).

If you are in contract to purchase a home and potentially have a "future jumbo" loan amount (listed above), please contact your loan officer immediately to make sure you're closing in time or make sure that you qualify for a non-conforming mortgage if your closing date is beyond the deadline.

Please forward this post onto any of your friends, family or co-workers who may be impacted with the reduced loan amounts. I'm happy to help anyone who needs a mortgage for a home located in Washington state.  

UPDATE August 19, 2011: HUD has announced that FHA to FHA refinances may exceed the new lower loan amounts if the refi meets certain requirements.  

If you're a subscriber to my blog, then you are probably already aware that conforming loan limits are going to be reduced in late September and that banks will issue their own deadlines in advance of what Freddie, Fannie, FHA and VA have established.

Fannie Mae's FAQs state they will continue to purchase the "temporary" high balance loans as long as the note date is September 30, 2011 or earlier. Lenders will not allow that much time as being caught with a loan that exceeds what will be the new loan limits is having an unsaleable loan to Fannie or Freddie.  It's now a jumbo/non-conforming.  Banks and lenders have to provide an earlier deadline in order to not get caught with a "hot potato" which will cost them dearly with the difference in pricing and guidelines. 

The difference in interest rate for a 30 year fixed with a jumbo and high balance conforming loan amount is around 0.50 to 0.75% in rate.  This morning, a conforming high balance rate for a 30 year fixed is currently 4.625% (apr 4.735).  If a lender wound up being stuck with a "hot potato" loan that had a delayed closing and/or late delivery, and they had to sell it as a jumbo, in order to buy the rate of 4.625%, it would cost (based on current pricing) around 1.75 – 3.5% of the loan amount to buy down the jumbo rate to the note rate.  For example, if a lender is stuck with a conforming loan on a King County property in the amount of $506,001, we're talking a cost of $8,850 to $17,700 depending on the lender.  If this loan does not meet jumbo/non-conforming guidelines, such as having mid-credit scores below 720, it will cost the lender even more. 

Earlier this week, I received proof of this from one of the lenders we work with:

All loans approved and expected to close under the current loan limits must close, fund, disburse and be delivered in purchasable form no later than Friday, September 30, 2011. THERE WILL BE NO EXCEPTIONS. Please review current pipeline and new applications as there is no guarantee as to Super Conforming limits if the loan disburses after September 30th.

In order to "deliver" a loan to this lender by September 30th, a mortgage company would actually need to "close, fund and disburse" about 10 days earlier to their deadline to avoid being caught with the "hot potato".  If you have a loan amount that is in the gap between current high balance limits (which have actually always been "temporary") and the new loan limits, you need to close your transaction by mid-September to be safe.  In the greater Seattle area, this would consist of loan amounts between $506,001 and $567,500.  Here's a list of the other counties in Washington that will suffer a drop in conforming loan limits.  

By the way, this doesn't just apply to conventional loans, FHA loan limits are dropping effective October 1, 2011 too.  I have not yet received a memo from lenders we work with stating what their cut-offs are.  I expect it will be the same as conventional loans – plan on closing by mid-September or risk not being able to close.

I'll post more information as more banks and lenders issue their deadline. Meanwhile, if you are considering refinancing or buying a home and your loan amount fits into this "gap" between the existing limits, you may want to contact your local mortgage professional now if you want to avoid having a jumbo loan.

As always, I'm happy to help you if your home is located anywhere in Washington, where I am licensed.

UPDATE August 4, 2011: Another bank has issued their conforming high balance deadlines:

All loans using the ARRA loan limits must be locked on or before Thursday, September 15, 2011. These loans must be closed and funded no later than Friday, September 23, 2011.There are no further delivery requirements.

Our current FHA and Conforming High Balance loan limits are scheduled to roll back on October 1, 2011 unless Congress decides to act quickly and extend them.  In the greater Seattle area, the loan limit for a single family dwelling is $567,500, after September 30, 2011, the conforming limit is set to be reduced to $506,000.  The difference of $61,500 will impact home owners, home buyers and sellers alike.

If you are a home owner in King, Pierce or Snohomish County considering a refinance and your loan amount is higher than $506,000; effective October 1, 2011 your loan amount will be considered a non-conforming (aka a jumbo).   This will impact all counties in Washington State who currently have temporary "high balance" loan limits.

Notes dated after September 30, 2011, conforming loan limits are set to return to those as set forth per the Housing and Economic Recovery Act of 2008 (HERA).  For single family homes, conforming loan limits look like this as of October 1, 2011:

King, Pierce and Snohomish Counties: $506,000 from the current $567,500, a $61,500 reduction.

San Juan County: $483,000 from the current $593,750, a $110,750 reduction in loan limit.

Kitsap County: $417,000 from $475,000, a $58,000 reduction.

All other counties will have a maximum conforming loan amount of $417,000.

Lenders will start to implement this well before the September 30th deadline as no one wants to be left holding yesterday's high balance loan amount when the limits have dropped as they'd have a jumbo mortgage with a conforming rate.   Since the effective date is based on the Note date and not when an application is taken, this will cause the new loan amounts to appear sometime this summer in my estimation.

If you are considering a refinance and your loan amount is above the future loan limit and below the current (between $506,000 and $567,500 in Seattle or Bellevue) you don't want to delay!  Having less financing options available for homes may also impact appraised values as fewer people will qualify based on the jumbo guidelines.

If you are considering buying a home and you're not wanting to come up with the additional down payment required to make up the "gap" between the loan limits, you may want to try finding that home by early summer and close well before September 30, 2011.

If you are selling a home that would be ideal for a "high balance conforming" borrower (in the Seattle/Bellevue area, that would be a sales price of $700,000 to $500,000), I suggest you make sure you price your home competitively and consider all types of financing (including FHA and VA).  Once the new loan limits go into effect, you've lost a lot of potential buyers who may not be eager to come up with the additional funds to stay in the conforming or FHA market. 

If you're a Listing Agent, please do your clients a favor and accept FHA and VA offers.  

I'll continue to keep you posted as more information becomes available.