I wanted to pass along some mortgage information and a substantial change we may all be seeing in the New Year. The Conventional Conforming Loan Limits are always a hot topic this time of year, but this year more than most years. This is because Fannie Mae and Freddie Mac may be lowering 2014 Conventional Loan Limits. This will be the first time they have been lowered since 1990.
The last time all Conventional loan limits were increased was 2006. In 2009 “temporary” loan limit in “high-cost” area, where the median home sale price exceeds the national average were increased as well. There are more than 770 “high-cost” areas in the US today; areas that include, New York, San Francisco and Los Angeles. Fannie Mae and Freddie Mac’s lowering of loan limits are thought to affect these areas as well.
The reason the loan limits were increased in 2006 was to help home owners obtain home loans more easily during a crucial stage of the housing market recovery from 2007-2013. It is forecasted if loan limits are lowered, they will be lowered by about 4% across the board. This would mean a single family home that now is at $417,000 would go down to $400,000. It could also be lower. I have heard anything from $385,000-$400,000. The new loan limits usually come out around Thanksgiving. Brent and I will definitely update everyone as soon as we know what the new loan limits are. If you have buyer that could be affected by this change, you may want to start having a conversation with them about buying sooner than later.
If Conventional Loan Limits decrease this will make it harder for your customers to obtain “low down payment” financing. Jumbo loans are not backed by Fannie Mae or Freddie Mac. Because of this, they are higher risk loans and usually require more money down. Currently, the expected down payment is 20%. Moving forward we will have lenders able to finance up to 90% loan to value on a Jumbo loan, but we do not know exactly what those products look like at this point. Obviously, if Conventional Conforming Loan Limits decrease there will be a higher need in the market for Jumbo financing. We will see more lenders willing to purchase these types of loans, but these loans will be considered “higher risk” and might be reflected by guide line limitations.
About the author: Tiffany L. Swisher (NMLSR ID 406333) is a Home Mortgage Consultant with Colorado Mortgage Alliance, LLC. If you have any questions about the content in this article, please contact her directly.