Conforming Loan Limits: Changing or not? What does it mean to you and what does it mean to the housing market - Short term and Long term?
Source: HUD / partial
Barring Congressional action, Federal Housing Administration (FHA) loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act (HERA) for loans insured by FHA on or after October 1, 2011. As a result, FHA loan limits would likely decline in 669 of the 3,334 counties or county equivalents that are eligible for FHA insurance. The remaining 2,665 counties are unlikely to experience a change in loan limits. Additional information and analysis may be shared in the coming months.FHA loan limits restrict the size of mortgages that can be insured by the Federal Housing Administration (FHA). Prior to 2008, the National Housing Act, as amended in 1998 Mortgagee Letter 1998-28, required that FHA mortgage limits be set at 95 percent of the median house price in that area. However, FHA loan limits could not exceed 87 percent or go lower than 48 percent of the conforming mortgage limit established by the Government Sponsored Enterprises (GSE) in any given area. For the high-cost states and territories (Alaska, Guam, Hawaii, and the Virgin Islands), the National Housing Act allowed mortgage limits to be 150 percent of the national ceiling.
You should ask your preferred lender or your real estate agent if areas you are considering to purchase in will be affected or not!
The initial impact will most likely be a slight upward trend towards purchases. These announced potential changes may be strategically placed to help stop the apparent downward trend in pricing as the summer buying season approaches.
The long term effect may result in lower pices. In Orange County, California the proposed decrease in limits will go from $729,750 to $625,000. A reduction of 14% in buying power if you want to take advantage of the best rates. With the reduction of buying power it's most likely that the home prices/homeowners may need to compensate the buyers with lower prices. The non-conforming rates typically demand 1/8th to 1/4 percent increase. At the current interest rates this will actually not have a great impact on the cost of homes but there are more restrictions and demands from lenders taking on additional risks.
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