Moving Up? Doing It Now May Make Sense

The looming change to the conforming loan limit is finally taking center stage in conversations around the country.  In Southern California it will make a big impact.  It’s decision time for those that need that extra room in their loan to reach the home of their dreams.  Our friends at Keeping Current Matters brings us some additional insight today.   The clock is ticking… Moving Up? Doing It Now May Make Sense.

An issue that may have a gigantic impact on the housing market later this year is the lowering of the conforming loan limits. Without an act of Congress, these limits will return to the lower limits that existed prior to 2008. Today, we want to shed light on this issue and what it means to someone thinking about buying either a first home or move-up home valued over $600,000 in Orange County.

What is the ‘Conforming Loan Limit’? 

The ‘conforming loan limit’ sets the maximum loan amount, which either Fannie Mae or Freddie Mac are allowed to purchase individual loans. If a loan is larger than this limit, it is considered a ‘jumbo’ loan and is automatically disqualified from being sponsored by Fannie and Freddie. It would have to be handled by the private market.

A Little History:

Prior to 2008, the loan limit was $417,000. When prices started to rapidly escalate in certain regions of the country, the limit was increased. In Orange County, that limit jumped to $729,000. These new limits are scheduled to expire the end of September. If this happens, Fannie Mae and Freddie Mac may no longer be involved in these loans.

What Impact Will This Have on a Buyer? 

It will cost more in mortgage payments if buyers are purchasing a home over the limit in Orange County. The Mortgage Market Note explains: 

For the affected borrowers, because mortgage rates for jumbo mortgages tend to be higher than rates for conforming loans, financing costs may be higher… Over the latest year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.

Just a ½ point increase in mortgage rate on a $600,000 mortgage means an additional $186.00 in your monthly mortgage payment; a difference greater than $66,890 over the life of a 30 year mortgage. 

Bottom Line 

If you are thinking about buying (or selling) a home in the near future, give me a call so we can talk how this may impact you.

You can follow any responses to this entry through the RSS 2.0 feed.

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>