Million Dollar Listing Financing is Changing in Orange County, California
My favorite real estate show is Million Dollar Listing. Not only is it virtually in my backyard, the situations that arise on the show seem relatively more authentic than other real estate shows (I'm looking at you House Hunters). In October, financing may get trickier for those trying to buy a Million Dollar Listing. Unless the law changes (and they do seem to quite frequently these days), the temporary "Conforming High Balance" loan limits will decrease in Orange County from $729,750 to $625,500.
Big deal you say? Who is buying these homes anyway? Well, last year there was a 26% increase in sales for million dollar listings in Orange County. About 30% of those purchases were for cash, which leaves about 70% that needed financing. So, come October, lowering the Conforming High Balance loan limit could affect up to 70% of the buyers in one of the faster growing Orange County market segments, the Million Dollar Listing.
What are the ramifications of this change?
Higher interest rates
Starting October 1, loans between $625,501 and $729,750 will no longer be considered Conforming High Balance, but instead will be considered "Jumbo," which will increase the interest rate on these loans. I heard at a meeting the other day that Jumbo loans can have anywhere from a .25% to .5% higher interest rate than Conforming High Balance loans. For a Million Dollar Listing (with a $700,000 loan) that can mean a couple hundred dollars of payment per month.
Higher down payment
For Jumbo loans, lenders typically require 20% down payment. Conforming High Balance loans by contrast can under some circumstances work with only 10% down. It is currently possible today to buy an $800,000 home (I know, I know, not quite a Million Dollar Listing!) for 10% down or $80,000. If the limits change, an $800,000 home buyer would have to bring in at least $175,000. For some buyers, coming up with 20% down payment will be impossible and for others it will constrict their cash flow.
Tougher approval process
Finally, the biggest consequence to the Conforming High Balance limit change is that loans between $625,501 and $729,750 could be more difficult to get. For most buyers today, getting a Jumbo loan is much more difficult than getting a Conforming High Balance loan, because the latter can be resold and the former can't without difficulty. If it turns out that you don't qualify for a Jumbo loan, but would for a Conforming High Balance loan, then your maximum purchasing power will be reduced in October by over $100K, because you would be limited to a $625,000 loan, not $729,750.
We have clients in this exact position right now (you know who you are). Whether you are a buyer or a seller thinking about buying or selling a Milliion Dollar Listing (really anybody in the $700,000 and up price range), contact us so we can walk you through why now may be the best time to buy or sell homes in this price range.