While it might seem like mortgage refinances are the same everywhere, where you live can have a great impact on the rates you pay and on the loan you get. Different lenders serve different areas, loans in different areas are subject to different size limits, and closing procedures change from state to state.
Due to their stated goal of helping lower class and middle class homeowners, many government loan programs have maximum loan limits. Because houses cost more in some parts of the country than in others, those loan limits can vary by state.
As of 2012, the Fannie Mae conforming loan limit was $417,000 in general areas. Loans above the Fannie Mae limit are not eligible for their guarantee and have to be made as “jumbo” loans. While a $417,000 mortgage would be enough for a large home in many communities, in others it would barely purchase a small condominium. For this reason, Fannie Mae increases their loan limit to as much as $625,500 in “high-cost” areas. The high cost areas include the states of Hawaii and Alaska, the territories of Guam and the US Virgin Islands, and high-cost areas like Washington, DC and its suburbs, much of California, New York City and its suburbs and other similar areas.
The Federal Housing Administration, which underwrites the FHA mortgages and FHA streamline refinances that give borrowers access to great rates and low down payments, also has a loan limit. The FHA Forward program’s general limit of $271,050 applies to homes in low-cost areas like rural counties in Alabama. The highest limit of $1,094,625 applies in high-cost areas of the states of Alaska and Hawaii and Guam and the Virgin Islands. Chicago’s county has a $410,000 limit while San Francisco and Los Angeles counties have the highest loan limit for the contiguous US — $729,750.
Different lenders serve different areas. While national lenders serve the entire country, many regional firms and community banks have very limited lending areas. This is especially salient if you need a jumbo loan. Frequently, the best rates and terms on jumbo loans come from small banks located in the same community as the collateral property.
In addition to “formal” limits on service areas, lenders also periodically change their policies regarding a given area. For instance, in the wake of the high foreclosure rates after the popping of the mortgage bubble in 2007, many lenders simply chose not to lend in certain areas. These areas vary over time but if you live in an area with many foreclosures like Nevada, parts of California, or Michigan, prepare to shop around to find a lender that is willing to lend in your area at competitive rates.
Refinances work differently in different states. For example, refinance lenders in most states require you to pay for, or finance in, a title insurance policy. This policy protects the lender against the risk of someone stepping forward and claiming that they have a greater interest in the property than the lender. In Iowa, title insurance is illegal.
Another important different is the type of loan. Many refinance mortgages are actually not mortgages. They’re technically loans secured by deeds of trust. Trust deed loans are the norm in many states, ranging from Alabama to Wyoming. While they are similar to mortgages, they make it easier and faster for a lender to foreclose if you do not make your payments.
Researching your area and its lenders is the best way to understand what your options are. Our tools help you get a better sense of your local lending environment and prepare you to get the best refinance rates possible.
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