Are you ready to pay a higher mortgage rate?
More than 30,000 California families could face higher down payments, higher mortgage rates, and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, 2011, according to a recent analysis.
So what is a conforming loan limit? It is a limit that determines the maximum size of a mortgage that FHA, Fannie Mae, and Freddie Mac government-sponsored enterprises (GSEs) can buy or guarantee. For Dublin, Livermore, Pleasanton & San Ramon, the limit at present is $729,950.
Any loan above this amount is referred to as a non-conforming or jumbo loan and typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment, increasing the monthly payment and hence negatively impacting housing affordability for Tri-Valley home buyers.
If you are thinking of buying say a Pleasanton home in the $675,000 to $900,000+ price range, you might be well advised to act now as it looks likely that the loan limit will drop from the $729,750 to $625,500 come October 1st.
In fact, in anticipation of the change, Bank of America has already decided to stop accepting conventional and government applications for loan amounts that will exceed the October 1 loan amounts. The deadline to submit loan applications was July 1. Bank of America conventional loans that exceed the permanent loan limits will now be required to use non-conforming programs.
As a buyer, this will mean you will be paying a significantly higher interest rate (0.5% to 0.75% higher!) and tougher qualification for any loan above $625,500.
Unfortunately, this would also impact some sellers adversely as fewer potential buyers will qualify for home purchases due to the tougher qualifying standards and higher interest rates.
