The conforming loan limits are changing – what does that mean and why should you care?

For most borrowers, it probably means nothing at all, in fact the majority of the country falls into the standard conforming limit and they won’t be affected at all.

Since 2006, the conforming loan limit has been set at $417,000. In 2008 Congress passed the “Housing and Economic Recovery Act of 2008” (HERA). HERA permanently increased the conforming loan limits to the lesser of:

• 115% of area median home price (which varies by county) or
• 150% of conforming loan limit ($625,500). If that amount is less than $417,000, $417,000 remains the conforming limit

For roughly 250 counties in the US (out of just over 3200) the amount folks can borrow will go down. If you live in an area where the cost of living is high, you are probably impacted.

Many of these areas will drop from a maximum of $729,750 to $625,500, but that’s just the headline numbers. Any counties where the limit today is over $417,000 will probably be lowered down. The same goes for FHA loans – if you are considering an FHA loan, the limits will drop even further.

The “temporary” limits that are set to expire could still be extended again by Congress. Many people expect them to do so. But if Congress does not act to extended the temporary limits, any loan with the higher loan limit will need to close by 9/30/11.

We’ll keep you updated here on these conforming limits, when and if Congress extends them, or not.