Mortgage limits raised in CA counties

SAN JOSE, CA Besides helping potential homebuyers, raising the limits on conforming loans can also help sub prime mortgage holders. It will allow them to refinance their high rate into federally insured fixed rate loan.

The new limit for loans guaranteed by the Federal Housing Administration in high cost California counties, including Santa Clara, San Francisco and Contra Costa counties is about $729,000 dollars. That doubles the old maximum of just over $362,000 dollars.

The FHA operates by purchasing loans from commercial lenders and insures them against default. The package also includes a temporary increase in the cap on mortgages that the government sponsored mortgage companies, Fannie Mae and Freddie Mac can buy or guarantee from $417,000 dollars to just under $730,000 dollars.

Loans that exceed the FHA cap are called jumbo loans. Those usually have higher interest rates than conforming loans because you have to go through standard banking sources. Loans backed by the FHA are helpful for people who qualify but don't have a big down payment or less than perfect credit.

An FHA loan has a down payment requirement of 3-percent. By contrast, many mortgage brokers are now requiring a 20-percent down payment. Our media partner, the San Jose Mercury News reports it's not clear when the higher loans would be available, but one broker was told by a lender it should take about two weeks.

This rate increase is only for 14 high cost California counties. Most of them are in the Bay Area, the coast and Los Angeles area.

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