Mortgage Limits Can Help Homebuyers
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.
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.
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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