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2011-09-03 20:56:17

What Do Lower Conforming Loan Limits Mean To You?

 

If you’re in the market to buy a home, you know what I am talking about. If you’re in the market to buy a home and you don’t know what I’m talking about – keep reading! It is vital information!

On October 1, 2011, as part of POTUS’ attempt to repair the country’s housing finance system, Fannie Mae and Freddie Mac will be reducing the size of loans eligible for purchase by them, in other words – lowering the conforming loan limits. In high cost areas (like Los Angeles county) this means that they will only be purchasing loans no bigger than $625,000 (dropping it from $729,000).

What does this mean? Politically, it’s a move away from the government-reliant system we have in place today and a step closer to the privatization of the housing market. What does this mean for a homebuyer? Well, if you are looking to purchase a home with a loanin the $625,000 to $729,000 range – your loan will no longer be considered to be “conforming” and will now be “jumbo.” Jumbo loans often have higher rates than conforming loans (which means you will pay more interest on this loan). The government is aiming to reduce the risk taken on by these government agencies, by reducing the amounts of the loans eligible for purchase. But for you potential homebuyers, (in this range) you’re potentially looking at bigger payments.

The next impact affecting homebuyers, is the impact on home prices. Although some argue that this reduction will drive up demand (thereby increasing prices) for buyers to buy before the limits drop, that effect will be very short-lived, and it does not take the stringent financing requirements that most lenders have in place today.

Another drawback for homebuyers is the related increase in costs and fees that the Federal Housing Administration will be charging homebuyers looking to use FHA financing (meaning that they want to buy a home with a 3.5% down-payment). It sounds like looking to limit the taxpayers’ risks is also going to cost the taxpayers lots more money.

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