Super conforming loan amounts in Fairfield County just took a huge hit. Prior to Oct 1st you could borrow up to $708,750 and put as little as 3.5% down. As of Oct 1st you can only borrow $575,000
with 3.5% down. What a huge difference for FHA borrowers.
Now what about the people not interested in FHA loans you might ask? If you need a loan for more then $575,000 your loan will once again be classified as a Jumbo loan. The bad thing about Jumbo loans are the higher interest rates that come with them in addition to the higher down payments and more restricted guidelines which I won't even address. These loans will now be backed by private investors and not by Freddie Mac and Fannie Mae. The same loan amount will now come with a considerably higher interest rate thus higher mortgage payment. But for those that have been waiting on the sidelines, how much extra money will it cost them out of pocket to qualify for the new lower conforming loan amount of $575,000? Let's take a look.
example:
Prior to Oct 1st
30 year fixed principal & interest
Purchase Price - $880,000
20% down = $176,000
Loan amount - $704,000
This would qualify for a super conforming loan with a lower interest rate.
Oct 1st - Present
30 year fixed principal & interest
Purchase Price - $880,000
35% down - $308,000
Loan amount - $572,000
For buyers that can come up with the extra out of pocket cash needed to get the loan amount below the $575,000 guideline will not be hurt. For those that can not, will need to take out a Jumbo Loan and pay a much higher interest rate and mortgage payment for the exact same loan amount.
Let me give you an example: 30 year fixed principal & interest
As a reference lets use 1% as the bench mark for the difference between a conforming and Jumbo loan interest rate. Let's use the same loan amount $704,000.
1. $3,361.00 monthly principal & interest on $704,000 (conforming)
2. $3,779.22 monthly principal & interest on $704,000 (jumbo)
$418.22 is the difference in monthly payment, $5,018.64 per year.
Buyers waiting on on the sidelines speculating that the prices are still to high and will come down will take a hard hit if they are still in the market to purchase. In the meantime they have rented and likely covered the homeowners principal, interest, and taxes. These sideliners will be adversely affected by the following if they can't come up with the extra out of pocket cash required to qualify for the new lower loan amount.
1. Increase of $418.22 a month on their future monthly loan payment
2. Loss of all the tax deductions associated with deducting their interest payments from their taxes for as long as they rent.
I don't think the market will or has depreciated more then the sum of these factors. Time will ultimately tell.
The saying " If you snooze you loose" is fitting for what has occured Oct 1st - present. The sad thing is most of these potential buyers were not aware of these changes or I believe more would have pulled the trigger!
with 3.5% down. What a huge difference for FHA borrowers.
Now what about the people not interested in FHA loans you might ask? If you need a loan for more then $575,000 your loan will once again be classified as a Jumbo loan. The bad thing about Jumbo loans are the higher interest rates that come with them in addition to the higher down payments and more restricted guidelines which I won't even address. These loans will now be backed by private investors and not by Freddie Mac and Fannie Mae. The same loan amount will now come with a considerably higher interest rate thus higher mortgage payment. But for those that have been waiting on the sidelines, how much extra money will it cost them out of pocket to qualify for the new lower conforming loan amount of $575,000? Let's take a look.
example:
Prior to Oct 1st
30 year fixed principal & interest
Purchase Price - $880,000
20% down = $176,000
Loan amount - $704,000
This would qualify for a super conforming loan with a lower interest rate.
Oct 1st - Present
30 year fixed principal & interest
Purchase Price - $880,000
35% down - $308,000
Loan amount - $572,000
For buyers that can come up with the extra out of pocket cash needed to get the loan amount below the $575,000 guideline will not be hurt. For those that can not, will need to take out a Jumbo Loan and pay a much higher interest rate and mortgage payment for the exact same loan amount.
Let me give you an example: 30 year fixed principal & interest
As a reference lets use 1% as the bench mark for the difference between a conforming and Jumbo loan interest rate. Let's use the same loan amount $704,000.
1. $3,361.00 monthly principal & interest on $704,000 (conforming)
2. $3,779.22 monthly principal & interest on $704,000 (jumbo)
$418.22 is the difference in monthly payment, $5,018.64 per year.
Buyers waiting on on the sidelines speculating that the prices are still to high and will come down will take a hard hit if they are still in the market to purchase. In the meantime they have rented and likely covered the homeowners principal, interest, and taxes. These sideliners will be adversely affected by the following if they can't come up with the extra out of pocket cash required to qualify for the new lower loan amount.
1. Increase of $418.22 a month on their future monthly loan payment
2. Loss of all the tax deductions associated with deducting their interest payments from their taxes for as long as they rent.
I don't think the market will or has depreciated more then the sum of these factors. Time will ultimately tell.
The saying " If you snooze you loose" is fitting for what has occured Oct 1st - present. The sad thing is most of these potential buyers were not aware of these changes or I believe more would have pulled the trigger!
Comments(0)