Conforming Loan limit may increase

The following is taken from en email sent to me yesterday by Margot Zen at Diversified Mortgage here in Mammoth Lakes. She is one of the few lenders I recommend to my buyers because she and her staff work quickly, are very knowledgable and communicate well with my clients:

"I wanted to update you on some pending federal legislation that could have a HUGE positive impact for us who do business in more expensive areas. The federal government has put together an "Economic Stimulation Package." It has already passed the House and is on its way to the Senate. One of the areas that I am most excited about is they are proposing to raise the CONFORMING loan amount for high cost areas, such as ours, to above the current $417,000 limit.

They are proposing to increase that limit for a 12 month period to as high as $750,000. What does this mean to us?

It means our clients who are on the fence about purchasing property where they need a loan above the $417,000 limit will be able to get a loan at a much more affordable rate. (The difference between the interest rate on a conforming and a jumbo loan today are 5.48% vs 6.71%, which is a pretty big difference). If this passes the senate, we could see it go into affect as soon as mid February."

As an example of the effect this may have, let's hypothetically 'buy' a 2bd/2bath ski-in/ski-out condo at the Bridges for $700,000 (there is one on the market for $749,000). With a 10% down payment and a Jumbo loan at the rates Margot mentions (6.71%), the monthly payments would be $4,069. If the loan were instead considered conforming and rates were only 5.48%, the monthly payments would drop to $3,569, a savings of $500/month (or $6,000 per year).

It will be interesting to see if buyer activity increases if/when the conforming limits are raised. And, of course, refinance activity should increase from current owners with loan amounts between $417,000 and $750,000.

Sellers better not raise their prices artificially to take advantage of this demand-side advantage. I also predict that the spread will not be as much if/when the limits are raised. As my grandfather once said, "Nothing is ever as good or as bad as they first seem."

Margot can be emailed at margotzen@dmortgage.biz.