Congress Extends High Conforming Loan Limits Through 2011.

October 2, 2010

Great News.

It's very challenging to put any sort of excitement into the title of a post that has the word “Congress” in it, but believe me — this really is great news for the San Carlos real estate market.  On Thursday, Congress voted to extend the existing plan that temporarily increased the upper limit of conforming loans and Federal Housing Administration (FHA) loans to a maximum of $729,750 in high-cost areas….er, like San Carlos.   The current policy that was set to expire this year is now extended through the end of 2011.    I know, it still sounds boring — but his is actually a great, proactive move by our government.

Here's Why.

Conforming loans are guaranteed by Fannie Mae and Freddie Mac, so consequently they're lower risk and carry a correspondingly lower interest rate.  But up until a few years ago, the upper limit of a conforming loan was $417,000, which would buy you…. well, nothing in San Carlos.  Any loan amount above $417,000 required a jumbo loan, which comes from a different pool of money and is a different animal altogether.

Enter the recession and credit crisis a few years ago — jumbo money vaporized overnight, and the government essentially bailed out Fannie Mae and Freddie Mac by injecting billions of dollars into their coffers, and temporarily allowed them to write loans for a much higher amount.  The intent was to stabilize the free-falling real estate market, and it worked.

Today, the “high-balance conforming loan”, and to a lesser degree the FHA loan are by far the most commonly written notes by all lenders today in San Carlos and on the mid-Peninsula.  Why?  They're much easier to get, and the rates are fantastic.   This past week, I heard rates commonly quoted between 4.25% – 4.4% for a 30-year fixed loan with NO points.    That's cheap money.

Helps First-Timers, and Move-Up Buyers.

A quick look at the mechanics of this loan will tell you why the extended limit is so important to our local market.   With a 20% down payment, a buyer can use this loan to purchase a home up to approximately $912,000.   That covers the vast majority of what we consider “starter homes” in San Carlos (I's shocking.)     For move-up buyers with considerably more equity to spend and who are looking in the low $1M range, it has been very common to see them simply plunk down additional cash to enable them to use the high-balance conforming loan to fund their purchase.

In a nutshell, this loan package has been the jet fuel behind the San Carlos real estate market over the past few years, so it's great news that it will be around for at least another year.   Now isn't that exciting?

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  1. woaks surfer on October 5, 2010 at 5:46 pm

    I agree that these loans are the jet fuel that enable most families to buy in San Carlos, Belmont, and throughout the nicer areas of the peninsula. It is a great deal for families with around $350K in cash and solid income. On the flip side, these loans have also enabled many families who should not be buying $950K homes to get into these homes. The story repeats: Family with two incomes = $200k per year with $200k in cash for a payment buy a $925K home in SC leaving them with NO more cash in the bank and mortgage payment that pushes the limit of their $200K income. Sound good? at the moment. Then mom loses her job and their income drops to $100K per year, they have no money in bank to fall back on and then she finds out she is pregnant with twins….. welcome to foreclosure.

    I love these loans and am glad they exists. But in reality loaning this much money to a family that barely makes the cut financially for this price of home is dangerous and it has played out time and time again in SC over the past 4 yrs. These loans should only be given to family’s with at least $200k in extra savings after the transaction is completed. Otherwise they should be buying $700K homes in RWC.

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