More Trouble Ahead for Buyers Wishing to Get a Loan

Don’t think for a moment that the rollback of conforming rates will only affect homebuyers. What happens to buyers also affects sellers.

The new conforming loan limits which will roll back from $729,750 to $625,500 as of October 1, 2011 will have an effect on anyone who refinances or buys a home. This most certainly will have an impact on housing affordability—but to a slightly lesser degree on the Peninsula.

Buyers who will be hit the hardest are those qualifying for FHA mortgages since FHA loan limits track the conforming rate. This means that FHA buyers (who only have to put 3.5% down) will be relegated to less expensive homes—hard to find on the Peninsula. This could have a perverse effect of raising the competition (and price) for homes within the $625,500 striking range while lowering prices just above that threshold.

Most buyers will have already missed the opportunity to slip in using the high conforming limit of $729,750 since although the limits roll back on October 1, 2011 the deadline for having an application in for lender approval will be August 1^st 2011 in most cases (August 15^th for conventional loans).

This means that a buyer who purchases a home (or refinances) after the rollback will be paying a higher interest rate on the delta between the old $729,750 conforming rate and the new $625,500 ceiling. The good news is that $104,250 delta is only about a half percent higher than the conforming rates right now—not a significant deal to a buyer with the assets to purchase most Peninsula homes—adding only about $280.00 per month to their mortgage payment. With the income level needed to qualify for most homes buyers will no doubt absorb the increase as they do when gas prices go up $1.00 per gallon seemingly overnight. They still have to fill their tanks and trot off to their jobs.

Another wrench in the works is the “QRM” or Qualified Residential Mortgage requirement being proposed which if enacted would limit all residential mortgages to no less than a 20% down payment. Everyday there are more and more Congressmen on each side of the isle trying to halt this proposal so we are hopeful that calmer voices will prevail as this could reverse any momentum the housing industry is experiencing.

Interested in keeping up on Belmont home values visit monthly published stats on our web page:MorganHomes.com

Drew and Christine Morgan are REALTORS® in Belmont, CA employed by RE/MAX Star-Carlmont.

(650) 508-1441              

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.