Conforming is always $417k or higher, so most likely $346k is the FHA limit. Over $417k for your area is considered non-conforming. Anything over the conforming limit for your area requires at least 20% equity and excellent credit. When you have a non-conforming loan amount the options get pretty slim. If you had more equity you could pay your mortgage down to the conforming limit and hopefully it'd be at 80% loan-to-value or less and you'd avoid PMI, but you'd have to pay it down to $392k based on the value you listed. Even though the scores aren't top notch (leads to a higher rate or more fees with conforming financing), if your interest rate is high enough there could still be some savings and you could even do a no cost refinance.
Not a whole lot else to say other than a lot of loan officers are trained to be overly optimistic about a customers chances for approval, it leads to more applications and more applications lead to more loan closings... it's a numbers game.
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