Dear Kari,
My wife and I have been out looking at homes.
Last Sunday when we were talking to an agent at his open house, he mentioned that something is changing with the loans on Oct. 1.
He advised us if we wanted to buy a home in the $600,000-plus price range, we’d had better hurry.
He said if we didn’t purchase a home prior to that date, we may have to fork over a larger down payment than we had planned.
Is this correct? We’re confused and didn’t want to rush into anything based on that information.
Answer:
I’m glad you asked. There has been a lot of talk regarding the changing loan limits based on different programs.
Let me first explain that there are basically three different loan limits or thresholds.
The first is the conforming loan limit. Currently they are for loans that are less than $417,000. That is what you usually hear people advertising in print or on the radio.
The second type of loan is called a “high balance” or “jumbo” conforming limit, which was temporarily set in our area up to $580,000.
Those loans are a little higher rate but are backed by Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA).
The third type for loans with balances above the $580,000 barrier that are considered “jumbo” financing. At that point, a whole different set of rules apply.
When you obtain a home loan that is under the $580,000 limit right now, it will probably be sold on the secondary market, usually backed by either Fannie Mae or Freddie Mac.
If it’s an FHA loan, it is insured by the Department of Housing and Urban Development (HUD).
The reason for doing this is to free up money the banks have to lend or they could run out of money and would not be able to issue new home loans.
Once you get a loan amount exceeding $580,000, you get into the jumbo financing. Then the rate depends on what the market will bear for that since they are not part of the normal mortgage-backed securities market and not backed by Fannie Mae, Freddie Mac or FHA.
Because jumbo loans are big money, a lot of banks do not like putting all their eggs in one basket.
There have just recently been some proposed adjustments to this limit and it looks like they are going to reduce the “high balance” conforming loan limits in our area to $474,950, representing a drop of more than $105,000.
This might mean you would have to put a bigger payment down or look at a lower-priced home to keep the payment comfortable, or be able to qualify for the financing.
This takes us back to those dreaded words of more compromises. This loan situation could possibly mean no pool, no view, less square footage, different school district and so on.
In the event that you have been pre-approved and do not find the home you’re looking for and are not able to close escrow before October, you should go back and talk to your lender to see how these changes might affect your home loan buying power.
Kari McCoy owns the Kari McCoy Group, residential real estate at Lyon, and can be reached at (916) 941-9540 or e-mail sold@karimccoygroup.com.
