The Economic Stimulus Act and Jumbo Conforming Loans

You would have to be living on another planet be unaware of the government economic stimulus payments currently being issued to taxpayers.

Most people, however, do not know about another very important benefit that H.R. 5140, the Economic Stimulus Act of 2008, provides for the jumbo housing market.

A Brief History

The term "conforming loan" refers to a loan made in accordance with Fannie Mae and Freddie Mac underwriting guidelines. "Non-conforming" loans are those outside the guidelines, either because of the size of the loan or other factors.

Before the temporary change allowed by the government stimulus package, loans over $417,000 were categorized as jumbo (non-conforming) loans. Since Fannie Mae or Freddie Mac could not purchase jumbo loans, there was a smaller market for such loans. As a result, higher interest rates accompanied higher loan amounts.

New Stimulus Package Makes Jumbos Affordable

In an effort to increase the affordability of homes in high cost areas, the government has temporarily raised the limit of conforming loans from $417,000 to as much as $729,750.

This has established a temporary class of mortgage loans, call "jumbo conforming." This increase is only available in certain "high cost" areas in the United States, and will end on December 31, 2008.

Act Soon; This Benefit is Temporary

The benefit will expire on December 31, 2008.

What Jumbo Conforming Limits Means for Home Buyers

If you are in one of the government-defined "high cost" areas, you may find jumbo loans are available at lower interest rates. This makes housing in high cost areas more affordable.

What Jumbo Conforming Limits Means for Home Sellers

Home sellers will also benefit from the larger pool of qualified buyers to purchase their homes.

Where Are These High Cost Areas?

California has the most counties that qualify. To find out if your county is listed as one of these high cost areas, you can use this tool provided by the OFHEO website.

Remember, this loan increase is a temporary benefit. It will only be available for homebuyers and homeowners for a very short time. The loan benefit will expire December 31, 2008.

If you are in the market for a new home, but hesitant or waiting for the market to bottom out, you may be doing yourself a disservice.

Will you be able to take advantage of this temporary increase? There are credit score, documentation and down payment requirements in order to qualify for jumbo conforming loans.