Posts Tagged ‘loan limits’

Congress Restores Higher FHA Loan Limits

Friday, November 18th, 2011

It is official – Congress has voted to bring back the higher FHA loan limits. The measure, once signed by the President, will push the FHA conforming loan limit in the highest priced real estate markets (like California and New York) to $729,750 through 2013. The current limits cap at $625,500 in these markets; they were cut back as of October 1, because of Congress’ failure to extend them.

The limits had been temporarily raised for FHA and Fannie and Freddie during the financial crisis, when it became more difficult to obtain loans from banks.What does this mean for buyers? In the higher priced markets, it means buyers can get higher loans with lower downpayments, a move that prevents them from being locked out of certain neighborhoods due to lack of extra cash.

The new extension applies only to FHA loans, not Fannie and Freddie. FHA, which is a mortgage insurer (not a lender), provides mortgage insurance to buyers who do not have large enough downpayments to obtain prime loans. Borrowers with FHA loans can put as little as 3.5% down on the purchase of a home.

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Conforming Loan Limits to Get the Ax

Sunday, September 18th, 2011

On Friday the House of Representatives failed to extend the current conforming loan limits, which are set to expire on September 30. This was a big blow to the real estate market and to buyers and sellers. But does this mean the fight for extension is over?

Let’s take a look at the situation so that you can understand the problem. Current conforming loan limits are set at $729,750. They were raised to that number in 2008, to allow buyers to obtain financing for larger mortgages. This was a great help to buyers in ares where housing is higher, like here in San Diego county. If the limits do not get extended they will drop down to $625,500 in some areas, lower in others. Again, this really effects higher priced areas, such as along the west and east coasts.

Some argue that dropping the limits will actually be good for housing, as it will assure that only qualified buyers will get loans. However, in the higher priced areas it will force buyers to have larger down payments, or to buy homes priced lower. This will effect the higher end market, and in pricier areas this will effect the market, period. This is not good news for those who need to sell, and the long-term effect is that it will likely bring down prices substantially, or stagnate markets further…neither of which are positive options in this economy.

The Obama administration says that allowing the limits to expire will cause more private money to flow back into the housing markets. I am not a mortgage expert, but wouldn’t these have much higher interest rates? Allowing these limits to expire is going to effect an already fragile housing market.

The next opportunity to reverse the loan limit reduction will be at the end of the year. Let’s hope we get there, as now is NOT the time to distress the housing market any further.

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How Will Loan Limit Changes Affect the Housing Market?

Saturday, July 16th, 2011

It’s one of the questions of the moment, and one that many real estate agents and mortgage brokers fear most at this time: what will happen to the housing market once the conforming loan limits drop at the end of September? How will buyers and sellers be affected, if at all?

Let’s start at the beginning: conforming loans are those that are eligible for guarantee by the government. Because of this, they tend to have lower interest rates. The cap on the amount that the government can guarantee used to be lower, but in 2008 Congress raised the cap to $729,750 in some markets (typically those with higher priced homes, like in California). This made lenders feel more secure in doling out loans, because they knew they would be covered by Fannie Mae or Freddie Mac if the homeowner defaulted on the loan, thus making them less risky.

Also potentially on the chopping block are FHA limits, and lowering them could impact 40 states and hundreds of counties, according to the National Association of Realtors (NAR). Since FHA backed loans are popular right now across a broad spectrum of buyers, this could also be a problem for those seeking to qualify for these types of loans. Many organizations, including NAR, have been making appeals to Congress to not allow limits to be reduced.

Come October 1 these higher limits are set to revert back to the old limits – $625,500 in some markets , such as pricier home markets like San Diego County. Many reports have predicted this will be a huge blow to buyers trying to qualify for loans, and some lenders are already starting to scrutinize current applications in light of the coming changes. How might this affect the borrower?

Interest rate increases: With loan limit decreases higher interest rates are likely. If a borrower needs a loan that exceeds the new caps she will need a jumbo loan, which has a higher rate. This may cause the buyer to look for homes that are smaller and cost less – or simply to hold off on buying. Either way this could effect housing market recovery.

Down payment increases: Buyers will need to make bigger down payments should they need loans that are over the lowered limits, in order to get jumbo loans. Again, this could lead to inventory stagnation in the middle part of the market, with buyers starting to focus on lower-priced homes or just opting to wait.

Price decreases: With the changes in loan limits and thus, buyers being able to qualify, comes the inevitable – sellers may have to reduce home prices to entice buyers to buy (so that they can qualify for a loan without having to get a jumbo loan).

Given the current state of the housing market and economy, this move to reduce loan limits doesn’t seem like a good one…however, there is a ray of hope in the scenario: if you are a buyer you could benefit immensely from prices going down. You may have to adjust your criteria a bit – maybe a smaller home or one that needs a little TLC, but all in all it could have a positive outcome for buyers. Sellers are the ones who will have a more difficult time with the changes.

Buyers still have time to research, find a home and lock in a rate. If you are a seller, you still have time to price your home WELL. This is certainly not the time for overpriced listings, so have a frank discussion with your agent and utilize the comparables to come up with a price that will get those buyers in the door.

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