Now you can get a mortgage for up to $417,000 and still not move into jumbo-loan interest rate territory.
The Federal Housing Finance Board announced that housing prices rose 15.9 percent from October 2004 to October 2005. That translated into pushing up the conforming loan limit to $417,000 for 2006, from $359,650.
It isn’t the biggest percentage jump, but it is the biggest dollar jump for conforming loans, said Freddie Mac deputy chief economist Amy Crews Cutts.
Did homes really appreciate nearly 16 percent in value last year? The rise in the conforming loan limit is supposed to mirror the jump in home appreciation. But the survey looks only at home purchases on the last five days of each month, Crews Cutts said, which could skew the numbers. Refinancings are excluded.
The survey also excludes government-backed loans, like FHA and VA loans, said Dick Lepre, a mortgage broker based in San Francisco, adding, “Those tend to be smaller loans.”
Approximately 500,000 more families will qualify to purchase a home with a conforming loan, which Freddie Mac and its giant counterpart Fannie Mae will purchase from a retail lender, package together with other similar loans, and resell on the secondary market to end investors.
“The difference in price between a conforming loan and a jumbo loan is about a quarter of a percent,”; noted Lepre.
According to Freddie Mac, the savings for someone borrowing $417,000 with a traditional 30-year fixed rate mortgage is about $24,500 over the life of the loan, or about $816 per year.
“But you’d get more savings at the start of the loan, when most of the interest is being paid,” explained Crews Cutts. “By the end of the loan, what you’re paying is mostly principal.”
The real question is who is buying houses with $417,000 mortgages? To afford the payments, a typical family would need to earn about $150,000 per year.
“It depends on where you are in your lifecycle. It’s unlikely to be twenty-somethings unless it’s several twenty-somethings getting together to buy a house, which is relatively common in Washington DC. “That price is a starter house in California and a big house in Chicago,”noted Crews Cutts. “But $417,000 isn’t a particularly high price relative to what’s going on in Boston or San Francisco.”
According to the California Association of Realtors monthly newsletter, the median home price in California is $517,402. But the median home price in San Francisco area is $710,000, $709,000 in Orange County, $612,000 in San Diego, $389,000 in Riverside/San Bernardino and $383,000 in Sacramento.
Nationally, the median home price is $231,300, said Lepre.
While the new conforming loan limits will give buyers of higher-priced homes more low-down payment and low-cost loan options, it won’t mean much to those home buyers in the middle of the country where home prices tend to be less.
And because interest rates have risen slightly, don’t expect a rush of lenders to call to refinance your primary loan.
“Rates are now higher than last year. Normally, everyone would go to the title companies and would get information on loans that had closed between the old conforming rate and the new conforming rate. Lenders would call or send letters to those homeowners and inform them that they now qualified for conforming loans and lower rates,” explained Lepre.
“But so what? If they got jumbo loan in last two years, the interest rate is better than conforming interest rate is today. If rates had stayed same or gone down, we would have target marketed those people who had loans between $359,000 and $417,000. Now, it doesn’t make any sense,” he said. “I can’;t save those people any money.”
Effective January 1, 2006, the new loan limits for mortgages on one-to-four family properties will be $417,000 (one-family properties), $533,850 (two-family properties), $645,300 (three-family properties) and $801,950 (four-family properties.
Under Freddie Mac and Fannie Mae’s charters, conforming loan amounts are 50 percent higher for first mortgages on properties purchased in Alaska, Hawaii, Guam and the U.S. Virgin Islands.