Higher conforming loan limits could boost your buying power as early as Jan. 1 2003, but experts say today's volatile mortgage interest rates could make it foolhardy to delay a purchase or refinance based solely on limited benefits gained with a higher conforming limit.

Sources say Fannie Mae and Freddie Mac will up the conforming loan amount on first mortgages from the current $300,700 to $325,000 (for single unit homes) or higher next year.

The conforming level, announced in late fall or early winter each year, is the largest loan Freddie Mac and Fannie Mae will buy from lenders. The two purchase mortgages and repackage them as bonds for sale on Wall Street. The conforming loan level is 50 percent higher for properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

What's most important to mortgage consumers, however, is that conforming loans cost less to finance than non-conforming or larger "jumbo" loans, right now about 0.25 percent to 0.375 percent less.

"Currently there is about a 0.25 percent difference. This difference over a five-year period on a $300,700 loan amount is equal to $2,938.61 or $48.98 a month," says Rob McCarthy, a mortgage planner with First Portfolio Mortgage in Campbell, CA.

Sources say some lenders may already be offering reduced rates on larger loans in anticipation of a conforming loan level increase.

Consumers also may benefit from the increase immediately because, in some cases, the lending process takes several months. Loans applied for now or in the next few weeks may not be delivered until early next year. If the loan rate isn't locked on today's conforming loan amount the consumer, in this case, could get a conforming loan rate based on next year's levels.

It's all a big gamble.

What with interest rates so volatile , any savings probably isn't worth the wait for the new conforming level to actually take effect. The new conforming levels don't always take effect on Jan. 1 and any longer wait will have negligible benefits if mortgage rates rise significantly.

"The problem is rates are on the verge of moving up. Waiting for anything probably isn't going t be productive. Even a week's wait could be too much. Everybody is predicting a bond bubble is going to break. It's tempting but the number of people who fall into that $25,000 loan difference probably isn't a whole lot of people anyway," says Earl Peattie, vice president of the National Financial News Service in Philadelphia.

Experts say they don't see spikes in the number of first mortgages after the new conforming level takes effect, indicating consumers are much more concerned about the rate rather than the amount of the mortgage. Borrowers find numerous ways to get around conforming amount limits, including 80-10-10 loans (80 percent financed with a first loan, 10 percent financed with a second loan, 10 percent down) and other programs.

Mortgage options also allow borrowers to buy a home when they want and refinance out of an expensive mortgage later.

And any borrower who needs to wait for the relatively smaller difference in the higher conforming loan amount, may already be stretched too thin, financially.

Specialty loans are perhaps the best reason to wait for higher conforming loan amounts.

"For example, Wells Fargo's 'Easy to Own' loan is available only on conforming loans. This means currently buyers can purchase a $300,700 home with zero down, but next year they may be able to purchase a $325,000 home with zero down," said Richard Calhoun, broker owner of Creekside Realty in San Jose.

Investors also may find the new levels worth the wait.

"Someone planning on refinancing may want to wait if the extra $25,000 prevents them from needing to also take out a second loan. Or if someone is planning on refinancing three properties they could get another $75,000 cash by waiting just another couple months," Calhoun added.

Published: October 31, 2002

Use of this article without permission is a violation of federal copyright laws.

Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.