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What do the new conforming loan and FHA loan limits mean to the Orange County real estate market?

The new loan limits are going to have a significant effect on the market. These new limits won’t address the troubles everywhere, since they are formulated based on an area’s median sales price. So, they will have little effect in most of the country, but they will have a profound influence on California and, specifically, Orange County. Orange County’s limits have been established at the maximum amount of $729,000. On a 10% down loan, that will allow buyers to stretch up to $800,000. That will provide incredible liquidity to our market. With 10% down, the prior $417,000 limit allowed buyers to only look up to $459,000. That represents a difference of $343,000! The loans will be available as of April 1, just a few weeks away. Expect demand to increase substantially as many buyers take advantage of this temporary program. Demand should elevate and then remain at higher levels throughout 2008. The increased loan limits will expire on December 31st of this year. The increase was designed to assist markets like Orange County to get through the current financial crisis, buying precious time for the financial markets to right themselves. That should give the markets plenty of time to restore investors faith in buying pools of non-conventional loans once again. The FHA loan limits will allow buyers with credit blemishes and low down payments to obtain financing. This restores the gap in products with the drying up of the subprime market. FHA financing is a much better alternative to subprime and was common just a decade ago. The problem had been that the FHA loan limit was just too low to provide any help to the Orange County market. The limit had been $367,000 and was virtually non-existent in Orange County. Do not worry, FHA financing is NOT the same as subprime financing. It provides financing to borrowers with some credit issues and lower down payments, but it requires documentation of income and does not allow “payment shock” where a buyer jumps from a low rental payment to a high mortgage payment. FHA has all of the safety gaps and education in place so that buyers do not get in over their heads like they did with subprime financing. So, expect demand to increase substantially due primarily to the increase of both the conventional loan and FHA loan limits.

Posted by Garry Loss on 03/14/2008 04:40 PM

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