The House of Representatives has just passed a bill raising the Fannie Mae Freddie Mac loan limit from $417,000 to $625,000. The bill is on its way to the Senate and President Bush has indicated that he will sign the bill should the Senate pass it.
This is a potentially promising development for home buyers and home owners in high cost areas like the San Francisco Bay Area.
At the current time, conforming loans (i.e. those currently under $417,000) carry interest rates about 1% below jumbo loans (i.e. those currently over $417,000).
If this bill passes, it will be a big benefit to buyers who wish to borrow up to $625,000 or current homeowners who have existing mortgages up to $625,000 who wish to refinance.
Let’s take a look at what this may mean from a dollars and cents point of view.
Let’s take a $600,000 loan.
At 7%, the monthly payment for a 30 year fixed rate loan is $3,991.81.
At 6%, the monthly payment for the same loan would be $3,597.30 or $394.51 less per month.
In terms of qualifying for a loan, this $394.51 reduction in payment will reduce the income needed to qualify for this $600,000 loan by nearly $1,200 per month.
Smart Money provides further details on this exciting news. In addition, the bill passed by the House includes a provision for a 1 year increase in the limit to $729,750.
David Blockhous a long-time Los Altos resident and real estate agent with Coldwell Banker correctly points out that even if the increase in loan limit is passed it will not have a large effect on the Los Altos Palo Alto Menlo Park market since average prices are over $1.5M so even a $625,000 loan is well under 50% of the normal house price. Of course, the Los Altos Palo Alto Menlo Park real estate market is doing just fine. It is the lower price range that needs help. In the $600,000 to $800,000 price range, the proposed increase will help home buyers.
Marian Bennett living on the San Mateo Coastside and working as a Half Moon Bay real estate agent wonders whether these proposed changes will be a long term benefit to our economy. Marian also wonders how much of this activity is politically motivated. Per the RE Guru: Yes Marian it is ALL politically motivated - just about everything that goes on in Washington is. Most if not all of those Washington politicos sit around and yak yak yak - sit around and do nothing - and then when a problem hits - look for someone to blame - look to profit from it politically - and then try to get on TV and talk about how they feel the pain of the common man and woman while being driven in their limo to a five start restaurant which we the taxpayers pay for. So typical……….
OTHER SOURCES OF INFORMATION ABOUT THIS ISSUE:
The Office of Federal Housing Enterprise Oversight indicates that nearly 50% of jumbo mortgages are originated in California. This office appears to be against passage of the new bill.
3 responses so far ↓
1 Proposed Increase In The Conforming Loan Limit, Will It Help? | Silicon Valley Real Estate Guide // Jan 24, 2008 at 9:03 pm
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2 Conforming Loan Limits may be raised for San Francisco Bay Area borrowers | Coastal Real Estate and Lifestyles // Jan 24, 2008 at 9:56 pm
[…] Arn Cenedella, a Realtor with Coldwell Banker in Menlo Park highlights how much can be saved each month for a typical borrower. […]
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