New Loan Limits: Seller Bonanza

Looking at the new federal housing legislation, called the Housing and Economic Recovery Act of 2008, we have already seen a couple of its constituent parts in New Housing Bill:the Good, the Bad and the Ugly.

The bill permanently increases conforming loan limits to $625,500. Conforming loans are those that meet the guidelines of Fannie Mae and Freddie Mac, enabling the loans to be sold on the secondary market. Most loans are conforming loans. In February, Congress passed the Economic Stimulus Act of 2008 , temporarily raising the conforming loan limit in high-cost areas to $729,750 from $417,000 until December 31, 2008. Loans larger than the conforming loan limit are called jumbo loans and typically carry a higher interest rate, making already-expensive homes even further out of reach for stretched buyers.

At the time in February, this bill was desperately needed here since home prices had zoomed far beyond the means of people making ordinary incomes. Desperate homeowners were unable to refinance.   Sales had skidded to near zero. Thousands of current homeowners were facing foreclosure.  Since then, sales have resumed at a moderate pace, enabling many to purchase a home and many to stay in the home they already have. This bill, though temporary in nature, has had a noticeable positive effect here in Southern California.

This latest bill has set the new permanent conforming loan limit at $625,500. Since in the meantime, prices have fallen about 25-30% in our area, this is still excellent news.

The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area’s median home price, up to $625,500. The new FHA loan limit will be the greater of $271,050 or 115 percent of an area’s median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008.

The bottom line? This is good news for sellers, especially those on the cusp of the higher loan limits. You may actually be able to sell that home. It’s good news for buyers who won’t have to pay higher interest rates above the $625,000 loan amount. And, it’s good news for homeowners who want to refinance. For all these, every penny counts in our new economy.

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