Lower Loan Limits Coming October 2011

Lower Loan Limits Coming October 2011

 

At the beginning of the mortgage meltdown a couple of years ago, Congress enacted emergency legislation raising the limits on High Balance Conforming Loans.  These loans are designated “conforming,” meaning lower interest rates and typically a slightly easier transaction to get approved and closed when compared to Jumbo (or non-conforming) financing.  The High Balance variety is only available in designated high cost areas, like the San Francisco Bay Area.

 

Currently the “temporary” limit on these loans is $729,750.  This means that if you put 20% down on a $900,000 home, you can get a conforming loan in the amount of $720,000.  Effective October 1, 2011 the emergency legislation expires and is not expected to be extended.  This lowers this High Balance Conforming Loan to $625,500.

So, what does that mean to you? 

If you buy the same $900,000 home and put 20% down, your loan will now be considered a Jumbo loan.  Rates on Jumbo loans are typically 1-1.5% higher, so if today you could get that loan for, say, 5% your payment would be $3865.12.  The same loan amount using the Jumbo rates would be 6-6.5%, bringing your payment to $4550.89.  Over 30 years, that totals over $246,000!  The other option would be to put a larger down payment on the property, to the tune of nearly $100,000.

The important thing to note is that if you are looking for a loan to purchase a home, or refinance the one you already have, now is the time to move forward. The limit will remain at the higher point until the first of October, giving home buyers the spring and summer seasons to purchase a property before the high limits are gone.

To find out what the current loan limit is in your area, you can access the Fannie Mae website to see a county-by-county spreadsheet.

The Complicated World of Credit Scores

The Complicated World of Credit Scores

 

Lenders use different credit scores for different purchases.  If you have successfully navigated a website that offers to sell you your credit score, you may think you have all the information you need in order to apply for a loan or new credit card.  Not necessarily. The score you received could be quite different from what a lender receives. Different scores are offered for mortgages, car loans, insurance and more.

 

Under the Fair Credit Reporting Act that took effect January 1, lenders must either tell those who apply for credit what score was used, or tell them how it was used if the applicant doesn’t receive the best terms available.  Here are some reasons why a credit score (a number between 300 and 850) still won’t tell you how a lender evaluates of you:

* Some lenders give the best rates to people with a score of 740, others may use 760 or higher. Some give credit to people with scores in the high 500s, but others require 620 or more.

* Credit scores don’t reflect whether you are making good financial decisions or poor ones.  If you refinance your home at a lower interest rate, inquiries could show up on your report.  Inquiries can lower a score.

* Late payments show up on your score for a couple of years, but paying down a high balance has an immediately beneficial impact.

* If you pay your credit card bill in full every month, you don’t get a zero balance on your credit report. The report shows the balance at the end of the billing period, before the payment.

* Rather than checking your score frequently, you are better off making sure the information on your report is correct. Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.

First-Time Buyers Fading

According to a recent report in the Wall Street Journal, the domination of cash-buyers and investors has been steadily increasing since July.

Capital Markets reported that “cash buyers and investors together have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%.”

This means that home prices are lower, and are expected to continue decreasing as demand for home weakens.

Locally, Santa Clara and San Mateo home sales are also dominated by cash-buyers and investors. As more homes are pushed to sale via foreclosures, demand will lower along with housing prices.