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Increased Mortgage Limits Can Help Homebuyers

The 2004 conventional loan limit of $333,700 for single-family homebuyers shows that while the average price of a home in the U.S. continued to grow in 2003, it didn't grow as much as it did in the previous year. It does verify, however, that buying a home continues to be a good investment-possibly one of the best ones you could make. The 2004 loan limit is an $11,000, or 3.4 percent, increase over the 2003 loan limit, as announced separately by Fannie Mae and Freddie Mac-publicly owned corporations that buy mortgages. The increase, however, is only one half of the $22,000 jump that conventional loan limits made from 2002 to 2003.

Any loan above the conventional loan (a loan not guaranteed through a federal agency) limit is treated as a jumbo loan. "Interest rates are significantly lower on conforming mortgages (those below the $333,700 limit) than on jumbo mortgages," explains Fannie Mae Chairman and Chief Executive Officer Franklin D. Raines. "So by obtaining a mortgage that Fannie Mae is eligible to buy, in 2004, as many as 95,000 homebuyers could save up to $21,900 over the life of a 30-year mortgage." As a result of the new limit, many home loans that would have carried the higher jumbo interest rates in 2003 can be bought at a lower rate starting January 1, 2004. It is important to remember that the loan limits apply to the size of the loan, not the cost of a home. This means that a family borrowing $333,700 to buy a $333,700 home and another family borrowing $333,700 to buy a $500,000 would both have conforming mortgages. Conversely, a person borrowing $400,000 to buy a $450,000 home would have to get a jumbo loan.

Freddie Mac explains that the conforming loan limits are based on the changes in average house prices between October 2002 and October 2003, according to the Federal Housing Finance Board's monthly survey of lenders financing both new and existing homes. Based on those numbers, home prices in the U.S. continued to grow. The new loan limit does show, however, that buying a home continues to be one of the best and safest investments you can make. Aside from the tax savings that you get when you own your own home, your home can also offer financial security. More and more people look at their homes and their equity in them as a source of extra or even emergency cash through refinancing, home equity loans, or home equity lines of credit. Many others view them as a major portion of their retirement income, since they can sell their homes after the children leave and move into smaller and more affordable housing.

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