October 1, 2011 the government plans to scale back the size of “jumbo” mortgages it guarantees in high-cost real estate markets, which includes Washington, D.C. area and Northern Virginia counties that I serve as a real estate agent: Arlington County VA, Fairfax County VA, Fauquier County VA, Loudoun County VA, and Prince William County VA.
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On October 1, 2011 the maximum loan amount that Fannie Mae and Freddie Mac guarantee is set to decrease from $729,750 to $625,500. This might make mortgages more expensive or more difficult to get for buyers in high-cost areas, MSNBC.com reports.
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For example, after October 1, 2011 a borrower who seeks a government-backed mortgage for a $1-million property may have to come up with a $370,000 down payment instead of $270,000, Rob Chrisman, a mortgage banking consultant from San Rafael, Calif., told MSNBC.
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Up until 2008, any loan more than $418,000 was considered a jumbo loan, but that later swelled to $625,500 and then was temporarily set at $729,750 (which expires at the end of September 2011).
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Once the current jumbo loan limit expires, lenders who want to make loans OVER $625,500 either will have to hold onto the mortgage themselves or find a private investor to purchase it.
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NOTE: This is only my personal opinion. It will be interesting to watch how decreasing the maximum loan amount will affect home prices in Washington, D.C. area.
It may have two-fold effect:
- The prices for expensive homes may DECREASE as there will be FEWER buyers able to afford the bigger down payment requirement and thus the supply of homes will be greater than demand for them.
- However, the prices for homes that are now in $550K-$750K price range may INCREASE as there will be greater demand for those homes because buyers who would have purchased homes with the $729,750 loans now will qualify only for $625,500 and many of them cannot afford bigger down payment.
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The Federal Government needs to do whatever it needs to do to protect the TAXPAYERS. In general, the monthly mortgage payment should NOT exceed 31% of the monthly income, and the TOTAL monthly debt payments should NOT exceed 45% of the monthly income. Clearly, the market shift is not over and we need to accept it with a smile – maybe one day it will be a good story to tell the Grandchildren and collectively learn from the experience. Cheers!
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