When the government stimulus package expires on Sept. 30, higher conforming loan balance amounts are set to decrease in San Diego County, from $697,500 to $546,500. The new loan limits, set by the Federal Housing Administration, will reduce the amount that a home buyer can borrow and a homeowner needing to refinance into an FHA guaranteed loan.
An FHA loan is a popular loan in today's marketplace, as it allows home buyers to put as little as 3.5 percent down and borrow at rock-bottom rates.
Many lenders have already implemented deadlines on applications taken for the soon-to-be expired loans.
In early July, Bank of America stopped taking new applications for high balance loans to ensure closing by the deadline.
Barring government intervention, those wanting to borrow in amounts over the lowered limit will need a larger down payment or pay a higher rate on the remaining balance above $546,500. This is a result of the lender incurring greater loss in the event of a homeowner default.
The current debate is how these changes are expected to affect our local real estate market.
Carlsbad is a higher cost area. The average 2,600-square-foot home costs roughly $700,000. The higher balance FHA limits have allowed more available buyers to purchase more expensive homes with smaller down payments. Under the new limits, those wanting to purchase a home above $560,000 will find that the amount needed as a down payment will increase steadily until you hit roughly $680,000 and above, which will require 20 percent down payment. And the question is as we restrict financing will sales of Carlsbad's higher priced homes suffer?
The answer to price stability in our local real estate remains supply and demand.
In terms of demand, higher down-payment requirements will keep some buyers from purchasing in the short-term. Those that do not have the necessary down-payment will either have to buy a smaller home or wait until they have saved enough money.
However, when queried, several local mortgage brokers attest that many of their clients have sufficient funds for a 20 percent payment, either in 401(k) or investment accounts, but choose to borrow as much as possible for their home purchase. The low fixed rates and deductible interest makes borrowing more on their home purchase their preferred choice.
These professionals have also noted an increase in the past 12 months of their clients using "gift" funds, some in excess of $100,000, to purchase their home. It seems parents are now more apt to give an early inheritance to help their children buy their preferred home and give them an early head start. Whether a positive change in the attitude towards future of real estate or the fact that those funds would be earning a paltry 0.5 percent in a traditional savings account, homebuyers may find alternative ways to fund down-payment requirements.
The California Assocation of Realtors (CAR) is lobbying to make the higher loan limits permanent, with the argument that the lower limits will restrict homeowners who need to refinance out of a high payment and/or convert an adjustable rate mortgage. Their argument is that more homeowners will be forced into foreclosure and that the lower limitis hamper economic recovery.
However, when presented with the question, a veteran vice-president at Bank of America stated the option to refinance into a jumbo-loan with a 4.875% rates is available. And that those homeowners who would default under the new change would most likely default anyways, with or without the higher FHA loan limit.
The new legislation should be viewed as long-term support for our local real estate market. Although larger down payments may restrict buying temporarily, it will help to curb speculation and raise accountability in the home purchase. The change in loan limits will help build long-term value into local housing and foster price stability, as future homeowners will be less investors and more owners.
An FHA loan is a popular loan in today's marketplace, as it allows home buyers to put as little as 3.5 percent down and borrow at rock-bottom rates.
Many lenders have already implemented deadlines on applications taken for the soon-to-be expired loans.
In early July, Bank of America stopped taking new applications for high balance loans to ensure closing by the deadline.
Barring government intervention, those wanting to borrow in amounts over the lowered limit will need a larger down payment or pay a higher rate on the remaining balance above $546,500. This is a result of the lender incurring greater loss in the event of a homeowner default.
The current debate is how these changes are expected to affect our local real estate market.
Carlsbad is a higher cost area. The average 2,600-square-foot home costs roughly $700,000. The higher balance FHA limits have allowed more available buyers to purchase more expensive homes with smaller down payments. Under the new limits, those wanting to purchase a home above $560,000 will find that the amount needed as a down payment will increase steadily until you hit roughly $680,000 and above, which will require 20 percent down payment. And the question is as we restrict financing will sales of Carlsbad's higher priced homes suffer?
The answer to price stability in our local real estate remains supply and demand.
In terms of demand, higher down-payment requirements will keep some buyers from purchasing in the short-term. Those that do not have the necessary down-payment will either have to buy a smaller home or wait until they have saved enough money.
However, when queried, several local mortgage brokers attest that many of their clients have sufficient funds for a 20 percent payment, either in 401(k) or investment accounts, but choose to borrow as much as possible for their home purchase. The low fixed rates and deductible interest makes borrowing more on their home purchase their preferred choice.
These professionals have also noted an increase in the past 12 months of their clients using "gift" funds, some in excess of $100,000, to purchase their home. It seems parents are now more apt to give an early inheritance to help their children buy their preferred home and give them an early head start. Whether a positive change in the attitude towards future of real estate or the fact that those funds would be earning a paltry 0.5 percent in a traditional savings account, homebuyers may find alternative ways to fund down-payment requirements.
The California Assocation of Realtors (CAR) is lobbying to make the higher loan limits permanent, with the argument that the lower limits will restrict homeowners who need to refinance out of a high payment and/or convert an adjustable rate mortgage. Their argument is that more homeowners will be forced into foreclosure and that the lower limitis hamper economic recovery.
However, when presented with the question, a veteran vice-president at Bank of America stated the option to refinance into a jumbo-loan with a 4.875% rates is available. And that those homeowners who would default under the new change would most likely default anyways, with or without the higher FHA loan limit.
The new legislation should be viewed as long-term support for our local real estate market. Although larger down payments may restrict buying temporarily, it will help to curb speculation and raise accountability in the home purchase. The change in loan limits will help build long-term value into local housing and foster price stability, as future homeowners will be less investors and more owners.