Posted: 16 May 2011 04:00 AM PDT
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 $400,000 in certain markets in the country.
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 some counties, that limit jumped to over $700,000. These new limits are scheduled to expire this October. 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 a region where the limit changed. 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 $500,000 mortgage means an additional $154.84 in your monthly mortgage payment; a difference greater than $55,000 over the life of a 30 year mortgage.
Which counties are impacted and to what degree?
Below is a map of the regions affected from the Mortgage Market Note. You can get a breakdown of each impacted county in this report also.
If you are thinking about buying a home in the near future, you should know how this issue may impact you. Sit down with a real estate professional familiar with your area for further advice.