A total of 17.2 million home loans will not be eligible for government funding if the conforming loan limit drops in October, according to the National Association of Home Builders. The maximum limit on mortgages that can be guaranteed or bought by the Federal Housing Administration, Fannie Mae and Freddie Mac will drop to $625,500 from $729,950. This ceiling varies from county to county. Proponents say allowing the drop will enable private capital to move in and fund more of the jumbo-mortgage market. But it won't come without a cost. NAHB expects non-conforming mortgages written above the new limit to carry interest rates between 50 and 75 basis points higher. Roughly 3.6 million owner-occupied homes are currently valued above the conforming loan limits. After the pending changes, another almost 1.4 million homes would be added to that total. But FHA-insured financing could become even more constricted. According the regulator, 620 counties will lower their FHA loan limit, affecting roughly 44.3 million owner-occupied homes, or 59% of the housing stock in the country. Currently, 8.3 million homes are priced above the FHA loan limits. After the changes take place in October, another 3.87 million will surpass the limit across the country. California could feel the brunt of the conforming loan limit cuts as high as $246,750 in some state counties, according to California Association of Realtors. More than 30,000 Californian homeowners will face higher down payments, higher mortgage rates and stricter loan qualification requirements when the limits drop, CAR said. "The lower limits will place a constraint on home buying in high-cost housing markets, such as those along the coasts and in California. It is the last thing we need in a housing market that is still struggling to get back on its feet," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. Write to Jon Prior. Follow him on Twitter @JonAPrior.