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The amount you can borrow with a government-backed mortgage loan has declined

Posted on November 11 By Francine Huff

The U.S. housing market continues to limp along. About a quarter of homeowners are underwater on their mortgage loans, foreclosure filings continue to drag down local housing markets and many borrowers are unable to refinance or sell their homes to improve their standard of living. Now, on top of everything else, the amount people can borrow with a mortgage backed by the government has dropped.

Mortgage borrowing capped

As of October 1. 2011, the maximum amount you can borrow with a government-backed loan is capped at $625,500. Previously, borrowers could get a mortgage for as much as $729,750 in some high-priced housing markets. The amount you can actually borrow depends upon where you live; the Federal Housing Administration has a tool that can help you find the conforming loan limit for your area.

The change in the conforming loan limits is likely to make it tougher for some borrowers in more expensive housing markets to get approved for mortgages. They may need to put down larger down payments or look for less expensive homes.

Getting a mortgage

Should you be worried about this change? Probably not, unless you live in a high-cost housing market. But even if you do, it is likely that housing values have fallen in your area, making homes more affordable than a few years back when the limit was increased. In this economy it makes sense to scale back plans for a home purchase. Getting into too big of a mortgage loan could put your financial future in jeopardy if you have to stretch your finances to make the monthly payments.

If you still want to finance a home over the conforming loan limit, you'll probably need to apply for a jumbo mortgage. Getting a jumbo loan means you'll pay a higher rate of interest and go under even tougher scrutiny to get approved.

Shop around for the best deal

Take time to investigate your options before applying for a mortgage. Whether you are buying or refinancing, it's important to compare mortgage quotes to find right deal for your situation. Even if you are concerned about how the change in the FHA loan limit may affect your ability to obtain a loan, don't assume that you won't get approved by a mortgage lender. Shop around to get information from several lenders to help make the decision to get a loan.

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