The Difference One Dollar Makes: Conforming vs Jumbo Rates

July 14, 2011 by Leave a Comment

This morning via Twitter, Talon Title asked me what the difference in rate is between a conforming and jumbo mortgage. Currently, as of October 1, 2011, the jumbo loan limit is set to be reduced unless Congress passes an extension.  In the Seattle area, the loan amount for jumbos will be anything over $506,000 (currently the loan limit is $567,500) for a single family dwelling. Ben Bernanke has stated that private banking will step in to finance these borrowers needing a mortgage over the conforming loan amounts…this is at a price.  He doesn't feel this will squeeze those borrowers out of the market.  I wonder if this will squeeze more buyers into adjustable rate mortgages.

Here's the difference in rates based on current pricing (as of 8:30 a.m. on July 14, 2011) with 740+ credit and an 80% loan to value.  We know the difference in the greater Seattle area between a jumbo and conforming rate will be $61,500 in down payment or equity.

Conforming loan amount of $417,000 or lower.

30 Year Fixed:  4.500% (apr 4.602).  

5/1 ARM: 3.000% (apr 3.292).  With 5/2/5 caps, this product is fixed at 3.000% for 60 months (P&I $1686) and then may adjust up 5% to 8.000% at the 61st payment (P&I $2744) or as low as 2.25% (P&I $1114). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8% or lower than 2.25%. Based on a $400,000 loan amount.

Conforming High Balance loan amount of $417,001 to $567,500 (for King County, Snohomish County or Pierce County).

30 Year Fixed:  4.625% (apr 4.602).  

5/1 ARM: 3.875% (apr 3.912).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2379) and then may adjust up 5% to 8.875% at the 61st payment (P&I $3786) or as low as 2.75% (P&I $2102). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $506,000 loan amount.

5/1 ARM: 2.875% (apr 3.231).  With 5/2/5 caps, this product is fixed at 2.875% for 60 months (P&I $2099) and then may adjust up 5% to 7.875% (P&I $3420)at the 61st payment or as low as 2.25% (P&I $1953). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 7.875% or lower than 2.25%.  NOTE: 5% additional down payment (75% LTV) is required for this scenario. Based on a $506,000 loan amount.

Non-Conforming – Jumbo loan amounts $567,501 and higher (until October 1, 2011).

30 Year Fixed:  5.250% (apr 5.371).  

5/1 ARM: 3.875% (apr 3.904).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2669) and then may adjust up 5% to 8.875% at the 61st payment (P&I $4246) or as low as 2.75% (P&I $2358). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $567,501 loan amount.

Let's pretend that it's October 1, 2011 and that the changes to conforming loan limits are in place and somehow, mortgage rates are exactly the same as what I've quoted above.

The difference between the conforming high balance and jumbo rates are currently 0.625% in interest rate with the 30 year fixed mortgage. A loan amount of $506,001 or more (proposed future jumbo) would have a $193 higher mortgage payment with the jumbo rate over the conforming high balance based on rates above.

Are people going to stop buying homes that are in the current conforming high balance price range?  I don't think so… I do think that when the conforming loan limits are reduced later this year, it will cause some to select mortgage programs they might not have considered such as adjustable rate mortgages or piggy-back second mortgages.  It seems to me that Congress should allow the temporary higher loan limits to stay in place until housing becomes more stable.  There was some discussion during testimony yesterday by Congressman Miller in California, however as I mentioned, Ben Bernanke doesn't seem to think that the reduction in loan limits will impact housing significantly.  We'll know more in a few months…and don't forget, Fannie has issued "warnings" via their FAQs that we may see loan limits further reduced effective January 1, 2012.

Just for fun… since we're pretending to be in the future, here's a trip down 80s memory lane: 

Filed Under: Fannie, Freddie and FHFA, Home Equity Loans & Second Mortgages, Interest Rates, The Fed - FOMC

Fannie Mae Homepath Buyer Incentive Extended Once Again

June 16, 2011 by Leave a Comment

Fannie Mae is extending their buyer incentives of 3.5% towards closing cost on qualified Fannie Mae homes through October 31, 2011.  In addition, they're also offering real estate agents a selling bonus of $1,200.   

Here are some details for qualifying for the Fannie's Homepath Mortgage special (from the Homepath website):

  • Buyers and/or selling agents (the agent representing the buyer) must request the incentive upon submission of initial offer in order to be eligible.
  • The initial offer must be submitted on or after June 14, 2011 and close by October 31, 2011. If an initial offer was made prior to the effective date, the offer is not eligible for the incentive.
  • The sale must close on or before October 31, 2011. No exceptions will be made to this deadline.
  • Only buyers purchasing a HomePath property as their primary residence may receive up to 3.5% in closing cost assistance. Second homes and investment properties are excluded from the incentive.
  • Buyer must sign the Owner Occupant Certification Rider to the Real Estate Purchase Addendum.
  • If a buyer's total closing costs are under 3.5%, the difference will not be available as a credit to the buyer.

Don't forget, the Fannie Mae Homepath Mortgage does not require an appraisal and there is no private mortgage insurance for credit scores over 660.   Fannie Mae will lend up to the high balance conforming loan limit, which is currently $567,500 in the greater Seattle area (this loan limit is set to be reduced October 1, 2011).  For more information about Fannie Mae's Homepath Mortgage, click here.

Homepath We are pleased to offer the Fannie Mae Homepath Mortgage for homes located anywhere in Washington.  Here's an example of rates effective as of June 16, 2011 at 9:45 am for this home located in the Crown Hill neighborhood in Seattle offered at $408,000 based on a credit score of 740 or higher and utilizing the 3.5% credit towards closing cost closing in 30 days.  With the closing cost credit, home buyers can purchase qualified Homepath properties with just their down payment.

With a 3% down payment of $12,240, the 30 year fixed rate is currently 5.00% (apr 5.232). The principal and interest payment is $2,124.53 – remember there is NO private mortgage insurance!  

With a little extra down payment of $20,400 (5% down), the rate improves to 4.750% (apr 4.978) with a principal and interest payment of $2,021.91.

A down payment of 10% currently provides a rate of 4.625% (apr 4.584) with a principal and interest payment of $1,887.92.

Adjustable rate mortgages are available with this program too.

If you would like a rate quote or are interested in getting preapproved for a Fannie Mae Homepath mortgage, please contact me! 

Filed Under: Fannie, Freddie and FHFA, Homepath, Residential Purchase

Financing a “Kiddie Condo” for your College Student

June 2, 2011 by 1 Comment

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A few weeks ago, I helped a Kent couple purchase a condominium located in Seattle for their daughter to live in while she attends college at Seattle University. They were prequalifed with their credit union, however the credit union was treating the transaction as if it were an investment property even though the couple (we’ll call them Mr. and Mrs. Kent) were not going to rent the property.

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Filed Under: Condos, Family Opportunity Mortgage, Fannie, Freddie and FHFA, Financial Planning, Interest Rates, Investment Property Tagged With: , ,

Fannie Mae issues FAQs on the Pending Expiring Loan Limits: 2012 Limits Could Be Lower

May 19, 2011 by Leave a Comment

A couple days ago, Fannie Mae addressed questions regarding the high balance loan limits that are set to expire effective with Notes dated October 1, 2011 or later.  The current (technically "temporary") high balance limit in the greater Seattle – Bellevue area is $567,500, the new loan limit ("permanent") after September 30, 2011 is $506,000.

Here are some points from Fannie Mae's FAQ's:

Q2.  Are the loan limits definitely expiring? What would it take to get them extended or changed from the permanent loan limits?

Congress would have to take action to extend or revise the temporary loan limits, which were originally put in place through the Economic Stimulus Act of 2008 and have been extended through a series of additional legislative actions to provide support to the mortgage market…. The February report to Congress by the Departments of Treasury and [HUD] stated "the Administration recommends that Congress allow the temporary increases in limits that were approved in 2008 to expire as scheduled on October 1, 2011 and revert to limits established under HERA [Housing Economic Recovery Act]." As such, we do not expect any further extensions.

Q3. What will happen in 2012?  Could permanent loan limits go down?

…the Federal Housing Agency (FHFA) is required to evaluate loan limits annually, and then revise limits accordingly.  The first set of HERA loan limits (a.k.a. "permanent" loan limits) was established for calendar year 2009 based on the median home prices….While there have been median home price declines over the past three years, FHFA followed a policy to "not permit declines relative to the prior HERA [permanent] limits."

…no changes are expected to those permanent limits between October 1, 2011, and December 31, 2011.  FHFA has not indicated whether it will continue its policy of not permitting declines in HERA-based limits beyond 2011…2012 loan limits could decline from those that will apply in the fourth quarter of 2011.

Loan limits for 2012 are expected to be released by FHFA in mid-November of this year.  Current counties that have temporary "high balance" loan limits in Washington State are:

  • King 
  • Snohomish
  • Pierce
  • San Juan
  • Kitsap
  • Jefferson
  • Clark
  • Skamania

Only King, Snohomish, Pierce and San Juan Counties will continue to have high balance loan limits from October 1, 2011 to December 31, 2011.  The other Washington counties listed (and all counties not listed) above will be returning to a conforming loan limit of $417,000 through December 31, 2011.

We don't know what 2012 brings for loan limits. We should learn more in November.

If you would like me to provide a rate quote for your home located anywhere in Washington, click here.

Filed Under: Fannie, Freddie and FHFA

Considering a Mortgage Between $506,001 and $567,500 in King, Pierce or Snohomish Counties? Act Soon!

May 17, 2011 by Leave a Comment

Our current FHA and Conforming High Balance loan limits are scheduled to roll back on October 1, 2011 unless Congress decides to act quickly and extend them.  In the greater Seattle area, the loan limit for a single family dwelling is $567,500, after September 30, 2011, the conforming limit is set to be reduced to $506,000.  The difference of $61,500 will impact home owners, home buyers and sellers alike.

If you are a home owner in King, Pierce or Snohomish County considering a refinance and your loan amount is higher than $506,000; effective October 1, 2011 your loan amount will be considered a non-conforming (aka a jumbo).   This will impact all counties in Washington State who currently have temporary "high balance" loan limits.

Notes dated after September 30, 2011, conforming loan limits are set to return to those as set forth per the Housing and Economic Recovery Act of 2008 (HERA).  For single family homes, conforming loan limits look like this as of October 1, 2011:

King, Pierce and Snohomish Counties: $506,000 from the current $567,500, a $61,500 reduction.

San Juan County: $483,000 from the current $593,750, a $110,750 reduction in loan limit.

Kitsap County: $417,000 from $475,000, a $58,000 reduction.

All other counties will have a maximum conforming loan amount of $417,000.

Lenders will start to implement this well before the September 30th deadline as no one wants to be left holding yesterday's high balance loan amount when the limits have dropped as they'd have a jumbo mortgage with a conforming rate.   Since the effective date is based on the Note date and not when an application is taken, this will cause the new loan amounts to appear sometime this summer in my estimation.

If you are considering a refinance and your loan amount is above the future loan limit and below the current (between $506,000 and $567,500 in Seattle or Bellevue) you don't want to delay!  Having less financing options available for homes may also impact appraised values as fewer people will qualify based on the jumbo guidelines.

If you are considering buying a home and you're not wanting to come up with the additional down payment required to make up the "gap" between the loan limits, you may want to try finding that home by early summer and close well before September 30, 2011.

If you are selling a home that would be ideal for a "high balance conforming" borrower (in the Seattle/Bellevue area, that would be a sales price of $700,000 to $500,000), I suggest you make sure you price your home competitively and consider all types of financing (including FHA and VA).  Once the new loan limits go into effect, you've lost a lot of potential buyers who may not be eager to come up with the additional funds to stay in the conforming or FHA market. 

If you're a Listing Agent, please do your clients a favor and accept FHA and VA offers.  

I'll continue to keep you posted as more information becomes available.

Filed Under: Fannie, Freddie and FHFA, FHA

How much can Sellers contribute towards Closing Cost?

May 12, 2011 by 10 Comments

If negotiated in your purchase and sales agreement, a Seller may agree to chip in towards some or all of your bona fide closing costs, prepaids and reserves.  They cannot contribute towards your down payment.  The amount the seller can contribute varies depending on the program type and the amount of home buyer’s down payment. The percentage is based on the sales price and if the credit exceeds the closing cost, the mortgage originator can often use it towards discount points to buy down the interest rate.

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Filed Under: Fannie, Freddie and FHFA, FHA, First Time Home Buyer, Underwriting and Qualifying, USDA, VA Mortgage Loans Tagged With: , , , , , , ,

How to Buy an Investment Property with a 10 Percent Down Payment with no PMI: Fannie Mae Homepath Mortgage

April 26, 2011 by 1 Comment

HomepathEDITORS NOTE: Fannie Mae is no longer offering the FannieMae HomePath mortgage program. If you are considering buying a Fannie Mae HomePath property (foreclosure that is owned by Fannie Mae) in Washington state, I’m happy to help you.

Seattle area investors are taking advantage of current lower home prices and are buying rental properties.  One of the issues with investment property is that it often requires a larger down payment and more stringent underwriting guidelines.  However, if you buy a qualified property that is owned by Fannie Mae, the Homepath guidelines will allow as little as 10% down for an investment property with NO private mortgage insurance and NO appraisal.

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Filed Under: Fannie, Freddie and FHFA, Homepath, Investment Property, Residential Purchase Tagged With: ,

Fannie Mae Homepath Mortgage Incentives are BACK!

April 15, 2011 by Leave a Comment

NOTE:  This program has been extended through October 31, 2011.

Fannie Mae is trying to sweeten the pot for buyers to considering using a Fannie Mae Homepath Mortgage for purchasing a foreclosed home that is now owned by Fannie Mae by offering 3.5% in closing costs on eligible transactions that close by June 30, 2011.

Here are some details for qualifying for the Fannie's Homepath Mortgage special (from the Homepath website):

  • Buyers and/or selling agents (the agent representing the buyer) must request the incentive upon submission of initial offer in order to be eligible.
  • The initial offer must be submitted on or after April 11, 2011 and close by June 30, 2011. If an initial offer was made prior to the effective date, the offer is not eligible for the incentive.
  • The sale must close on or before June 30, 2011. No exceptions will be made to this deadline.
  • Only buyers purchasing a HomePath property as their primary residence may receive up to 3.5% in closing cost assistance. Second homes and investment properties are excluded from the incentive.
  • Buyer must sign the Owner Occupant Certification Rider to the Real Estate Purchase Addendum.
  • If a buyer's total closing costs are under 3.5%, the difference will not be available as a credit to the buyer.

Don't forget, the Fannie Mae Homepath Mortgage does not require an appraisal and there is no private mortgage insurance for credit scores over 660.   Fannie Mae will lend up to the high balance conforming loan limit, which is currently $567,500 in the greater Seattle area.   For more information, click here.

NOTE:  If you're considering a Fannie Mae HomePath Mortgage…I recommend checking out FHA rates which are currently lower, offers down payments as low as 3.5% and the mortgages are assumable.  It never hurts to compare your options!

If you have questions or would like a rate quote for a home located anywhere in Washington, please contact me!

Filed Under: Fannie, Freddie and FHFA, Homepath, Residential Purchase
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