Conforming limit set to decrease October 1st

The maximum allowable loan eligible for sale to the GSEs is currently 730k. Beginning October 1st, this limit will decrease to 625k.

What does this mean for consumers?

Obtaining loans above 625 will be dependent upon institutions without the government insurance provided by Freddie Mac and Fannie Mae. This mean loans made by banks will either be retained on portfolio or sold into private label securities. In other words, higher down payments and higher interest rates are inevitable without the government guarantee.

Financing will become more difficult as banks will require larger down payments and higher interest rates. Financing for loan amounts between 625k and 730k will see the largest impact. These loans will pay jumbo rates similar to mortgages above 730k.

Higher interest rates in the future does not mean you should necessarily rush out and buy a home now or before the Oct 1st deadline. Sellers and agents will push for homes to be sold between 625 and 730k leading up to the deadline because financing will be tighter. The lower interest rate is essentially baked into the sales price of the home. In many cases, it may be in the buyer's best interest to wait for a price drop and take the higher interest rate. You can always refinance (if in positive equity). You cannot change the price you paid for the house. The higher interest rate means you will be paying down the principal at a slower rate. Interest rates will be reflected immediately after October 1, while it may take sellers a few months to adjust sales prices accordingly.

If supply and demand remained constant before and after October 1st, the monthly payment should not change. Do you want a higher interest rate and lower price? Or lower interest rate and higher price? Personally, I'll pay a higher rate for my mortgage if I get a better price on the house. The higher interest rates imply a smaller pool of buyers that can afford a home in the 625k to 730k range. Less people able to afford means less demand and less demand means prices need to adjust. This will have a larger effect in higher cost areas such as California.


For those calling for less government involvement in the mortgage market, this is one result.

Remember:
High land leverage ratio
Structures ALWAYS depreciate over time
Value is in location
If you can rent your property for the same price you pay the bank, it is probably a safe investment....