For buyers and those prospected to buy in the big cities across the nation, the impact felt from the new mortgage loan limits may be quite immense. October 1 will see the federally guaranteed loan limits dip to $625,500 from the current $729,750.
Federal Loan Limits
Federal temporary conforming loan limits were enacted as part of the economic stimulus package at a time when financing activity hardly persisted among buyers exceeding the Fannie Mae and Freddie Mac’s $417,000 limit. To increase financing, the limit was raised in February 2008 with a floor of $417,000 to protect low-cost areas and a ceiling of $729,750 elsewhere.
Reducing Loan Limits?
Since then, the Fannie Mae always hinted at the possibility of the reduction of conforming loan limits since the limits have been based on median home prices, and now buyers in areas such as New York and Washington, D.C. will need to watch their calendars closely as high-cost lending will expire after Sept. 30. As a result, many buyers could be forced to choose between resorting to any means of forking over the extra cash to their closing statements, making higher down payments to stay under the limit and applying for jumbo loans. Buyers will generally aim to avoid the jumbo rates, which classify as any amount over $625,500, because the interest is higher.
Panic Over Jumbo Loans
June Phillips, a native New Yorker, senior vice president and associate broker of Halstead Properties, noticed panic over the jumbo loans throughout the summer.
“All my buyers who were looking for a place under $1 million had the jumbo limit in mind, because they knew they’d have to put more money down after Sept. 30,” Phillips said.
Big City Areas Most Effected
Those who are likely to be most affected by the lower loan limits are mainly buyers in high-cost areas that include New York, California, Washington, D.C., and Maryland among others. This is especially true since the process to close out purchases in those locations can take some time and buyers who aren’t already in contract to calculate their statements under the higher limit might be ruled out. Of course, residents of the less populated markets, such as Ohio, may only see as much as a 3.6 percent change in the loan limit size, considerably more reasonable than what’s in store for the big cities this fall. Jonathan J. Miller, president of the Manhattan-based Miller Samuel appraisal firm, predicted that the changes taking place in October will affect around 7 percent of transactions in Manhattan alone. It doesn’t sound like much, but it means a lot considering the timing of the reduction along with other struggles the market faces.
“But considering the housing market still needs a push,” said David Maundrell, president of aptsandlofts.com, “it’s bad timing to lower the limit now… in New York, because of our prices and where they are, it’s going to be an issue.”
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