The economic stimulus package proposed by the government today will do something that the real estate industry in California has been fighting for many years.  The conforming loan will finally rise from its current $417,000 to a more accommodating $729,000.  Without getting into an overly complicated explanation, it simply means that conforming loans will cost the average home buyer less money to borrow than non-conforming or jumbo loans. 

Typically, home buyers borrow 80% and come up with 20% as down payment to avoid PMI (private mortgage insurance).  In Santa Clara County, where the median home is over $800,000, this means you will not have to come up with the difference between $417,000 and the purchase price.  This means if you don’t have equity built up from a previous home, most buyers will borrow up to the limit of the conforming loan and come up with rest as a large down payment or a combination of down payment and a secondary loan.  If the home were $800,000, then the 80% of the loan would be $640,000 (as opposed to $417,000), so it makes a big difference for us in California. 

Now with the proposed limit increasing to $729,000, many more people will have greater chances of borrowing more money at lower rates.  First time home buyers will not have to resort to “funny” loans to try to get into their first homes.  Remember, it was all of those “funny” ARM loans that got us into this sub-prime mess in the first place. 

Great News!

Steve Mun, Silicon Valley Realtor

www.stevemun.com