Home loan limits are rising and that can save you big bucks over the life of your loan.

Every year during November, various housing agencies take a look at the housing industry. They’re interested in how much home prices have risen in the past year across the country, and how fast homes are selling.

And from that, they figure out how high the conventional loan limits should be raised. That that’s important to you, because the difference between paying on a conventional mortgage and a jumbo loan can run thousands of dollars. But before we get to that, let’s take a look at how the residential real estate industry fared this past year.

Are you feeling wealthier? Nationwide, home prices rose 13 percent between October 2003 and October 2004, according to the Office of Federal Housing Enterprise Oversight. That’s the biggest increase since 1979. In Chicago, prices rose over 7 percent. But that’s nothing compared to other cities. Feel like flying south for the winter? Prices for homes in Miami rose an average of 24 percent this year.

By the time 2004 ends, there will be 6.75 million existing homes sold plus another 1 and a quarter million new construction homes. That’s 8 million homes sold in total, which is an all-time high. Clearly the demand for homes hasn’t dropped off at all this year, which is confounding housing economists.

Based on the rise in home values, the loan limits for a conventional loan have been raised nearly 8 percent for next year to $359,650 for a one-family property like a single-family home, condo, townhouse or co-op, and $460,400 for a two-family property, like a two-flat. If you get a conventional loan, as most homeowners do, it means that Fannie Mae and Freddie Mac, secondary mortgage market leaders will purchase the loan. You’ll save about a half percent in the interest rate on a conventional loan versus a jumbo loan, so if you can get one, it’s worth it.

Let’s look at how much you’ll save with a conventional loan versus a jumbo loan. Let’s assume you have a $359,000 loan at 5 and a half percent. You’ll pay $2,038 per month and $375,000 in interest over the life of the loan. But if you get a loan for $360,000, which even though it is only $1,000 more falls into the jumbo loan category, you’ll pay 6 percent in interest. That translates into an extra $120 per month and an extra $37,000 in interest over the life of the loan.

So you can see, it really pays to keep your mortgage amount within the conventional loan limits. Meanwhile, experts are saying that next year could be another boom year in real estate.

RESOURCES

How fast will homes appreciate in 2005? Here’s what one economist thinks will happen: Projected 2005 home appreciation:

Chicago + 7.3%
Boston + 8.3%
Miami + 13.8%
Orlando + 10.6%
Sacramento + 15.1%
San Diego + 12.5%
San Francisco + 13%
Washington, DC + 16.9%
Seattle + 9.2%

Remember, these are only projections. We’ll have to wait until next year to find out if this economist is right.