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Much has been written about the economic stimulus package, HR 5140, recently passed by Congress - with articles and news analysis focusing on the tax rebates. While rebates are always welcome, I want to discuss the increases to conforming loan limits and loans made by the Federal Housing Authority (FHA) that are also included in this legislation.
Prior to HR 5140, the conforming loan limit - the maximum mortgage that could be purchased by guarantors Fannie Mae and Freddie Mac - was $417,000. Any amount higher than that and the borrower needed a "jumbo loan."
Because they're perceived to carry more risk, jumbos are priced at a premium and can cost the borrower as much as an additional 1.5 percentage points above the price of a conforming ($417,000 and under) loan.
For people purchasing homes in higher-pried markets such as the Boston area, borrowing to finance even a basic home purchase was simply more expensive. Now that Congress has approved the economic stimulus package, the new conforming loan limit has been raised to 125% of each area's median home price, maxing out at $729,750. Similarly, the legislative changes will also affect FHA loans in places where the median cost of a house exceeds the national statistical average of $334,000.
But the new limits have not yet been implemented, and there is much uncertainty about how such loans will be priced; early marketplace estimates price the larger loans at up to half a percentage point above those under the $417,000 mark.
Another complicating factor is that, as it stands now, the new limits apply only to 15- and 30-year fixed-rate mortgages for owner-occupied properties, not products like interest-only mortgages. Further complicating matters is the fact that the new limit applies only to mortgages originated between July 1, 2007 and December 31, 2008; the new limits expire at the end of this year.
The good news for borrowers is that financing will reflect the demands of market prices in areas like California, New York, and Boston. The bad news is that these changes are temporary and apply only to certain types of mortgages. If you're thinking about financing a purchase or refinancing an existing piece of real estate, contact your mortgage professional to find out how these new changes may affect your loan.
Got questions about real estate financing? Contact Debbie@westchester-mortgage.com or 617-965-1236. She'll consider them for inclusion in a future column. Debbie Siegel is president of Westchester Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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