I’m noticing that a lot of Mortgage Porter readers are finding my by googling various terms to learn more about when and how the conforming loan limits will be increased.
Here’s what I know (and what I’m speculating) so far:
I’ve heard that President Bush will be signing the bill into law this Wednesday. Then HUD has 30 days to publish what the median home prices are for various areas. The new conforming loan limit will be based on 125% of those values.
It’s estimated in the Seattle-Bellevue-Everett area, our new loan limit will be just shy of $500,000.
While this process is taking place, Fannie and Freddie need to figure out how they’re going to deal with this influx of new business. Underwriting guidelines will need to be considered and distributed to lenders. Also, I will eat a shoe if there are no "add to rate" to loan amounts $417,001 and over. I’m estimating the add will be 0.25% – 0.50% to the now conforming rate. For example, if your loan amount is $417,000 your rate for a 30 year fixed could be 5.500% – if your loan amount is $417,001 your rate would be 5.75% – 6.00%. This is still more attractive than what the current jumbo rates are.
Remember, the increase to the conforming loan limit is temporary. It is currently only valid through the end of 2008. Who knows, maybe Congress will extend it as they have the PMI deduction if they see it as a benefit to the American economy.
You can see this process will take a little time. I’m assuming that Fannie and Freddie are diligently working on the guidelines/pricing issues and not waiting for HUD’s home value information. Even so, it could very well be some time in March before this all takes place.
Stay tuned!
Hi Rhonda- I followed your link from Seattle Bubble, but really didn’t want to ask this there (that board is getting more and more hostile to those of us hoping to buy). Do you think the rise in loan limits will cause an up-tick in market activity? One part of me reasons that anyone who could qualify for $550K today will still only qualify for $550K next month, but the other side of me is panicked that this will cause another buying frenzy and push prices super high through bidding wars again. Despite the terrible inventory in our area right now, we are almost thinking “pick a house, any house” now to make sure we buy before the new limits take effect. What do you think about all of this? Are we thinking smart or being delusional?
Thanks! Jess
Hi Jess, it’s possible that it may trigger a frenzy but it’s hard to say how long it will last and to what degree. I think there are a lot of people sitting on the fence waiting to refinance or purchase. The price range you are in would be prime for the new proposed loan limit if it’s $493k as anticipated.
Please don’t panick. The best advise I can give to you is to just make sure you have a solid loan approval and that if you do find a home, be prepared to make an offer on it. If you don’t get it, another one will come along. If you buy in a complete panick, you might regret your decision.
What makes you feel like you should buy “any house now”?
Thanks for your reply, Rhonda. We’ve been watching and waiting for over 18 months now, prices have still not gone down (and in fact have gone up quite a bit since we last sold in Aug 06), and we are anxious to get settled in, get out of our rickety rental, get on with our lives, etc. I gave up waiting and we went through the steps to buy this month, only to find the market pick up and everything go STI. I don’t want to rehash too much more than I’ve done on SB already (I don’t want to become a one-song jukebox). I’m in a panic now with this loan limit and how it could drive up prices again because we are barely getting in the North Seattle market as it is (with our down payment and credit score, we max out at $650, but we don’t like the mortgage payments that come with anything over $575 or so). If the market suddenly becomes aggressively competitive again for buyers, we will have to opt out — which is why I’m starting to panic and hear strange voices in my head tell me that we need to buy now or never. What a terrible psychological game real estate it! Jess
The factor that SB often misses (or they’re detached from it) is that home buying and home ownership has a huge emotional factor. I have always had to own a home…I think it’s because we grew up renting and moving around quite a bit. I like to feel “grounded”…does that mean I’m a terrible investor? I don’t think so. I’ve done really well with the 5 homes that I’ve bought and sold in my lifetime so far.
Every home that I have bought, I did so without a lot of analyzing. I’m probably lucky it worked for me. I did have inspections but I didn’t sit and stew about if it was the right house…I just knew it was. I did not, however, buy in a panick-mode. I just don’t think you can make any good decisions about anything if you’re too ramped up.
I guess I try to look at what the worst case scenario that could happen? In your case, the loan limit is suppose to only last until December 31 (although who knows if Congress decides to extend it)…imagine what would happen to those homes in that price range if we do experience a rush come the end of 2008?
Right, and if there’s a rush, we don’t want to play (we’ll take our down payment and go home). Our current situation is with the existing limit of $417K — we wouldn’t like the mortgage payments if we took advantage of the new higher limit (hence the panic if a rush forces us to raise our max limit).
Thanks for taking the time to talk with me about all of this. You are right, I definitely do not want to rush into a house that maybe isn’t right for us. My husband is convinced we need to make an offer on a house a few blocks from us that is essentially a fixer and doesn’t feel right to me. He too wants to get this over with before the new limits go into effect.
Jess
Jess, if anything, there may be a refi rush for loan amount $417,001-$493,000 (or what ever the local limit winds up being)…but this is totally depends on how much the add to rate is those loan amounts. Loan amounts are bracketed with various add to fees and I’ve heard that Fannie/Freddie may add anywhere from 0.25% – 1.00% to rate for those loans. If it’s a full point, that will be a shame…what a waste. Then this is being done to help buy existing jumbo mortgages to free up credit lines and will do nothing to help new loans. Time will tell.