If you are considering buying a new home or "moving-up" from your current home, then here's something you'll want to keep an eye on that will affect your monthly mortgage payment:

On September 1st, 2011, the "conforming" loan limit will be trimmed back from $729,750 to $625,000 in most high cost areas (this includes King, Pierce, and Snohomish Counties). This means that loan amounts exceeding $625,000 cannot be backed by Fannie Mae or Freddie Mac, and will thus have a higher interest rate because the private market will have to assume the risk.

I'll elaborate while trying to keep this in plain English…

Prior to 2008 the conforming loan limit was $417,000, but this was increased to $729,750 in more expensive parts of the country because prices had rapidly increased. Fannie Mae and Freddie Mac, which can only back "conforming" loans, currently back approximately 90% of new loans being made and assume much of the risk of default by the borrower. Fannie and Freddie then repackage these loans as "mortgage-backed securities," which they are doing with minimal capital.

Long story short… home loans exceeding $625,000 will no longer be sold to and backed by Fannie and Freddie. For starters, the banks will not be willing to work with the razor thin capital Fannie and Freddie have operated with, but moreover they will have to assume the risk. More risk = higher interest rates.

To put this into perspective, just a ½ point increase on the interest rate of a $700,000 mortgage equates to an additional $218.18 of monthly payment.

On September 1st the conforming limit will automatically drop to $625,000. I suppose there is a chance that the drop could get delayed or altered in some fashion, but I'm not banking on that based on the fact that the White House is saying they plan to wind down Fannie Mae and Freddie Mac altogether in the coming years.

Click on over to this KCMBlog.com article for a little more info and a detailed map of areas affected.

BOTTOM LINE: If you are thinking about buying a home in a price range and with a down payment that will result in a loan amount exceeding $625,000, then you should consider what the effect of closing the transaction after the September 1st deadline will mean for your loan. Are you someone who this upcoming change may affect? If so, then I'm always happy to answer questions or get you in touch with a mortgage professional who can talk in greater detail about what to expect.

- Robert E. Wasser - Seattle and Bellevue real estate market trends, statistics, news, and blog