As of October 1, 2011, high balance loan limits in greater Seattle are set to be reduced from $567,500 to $506,000 for a single family dwelling for both conventional and FHA mortgages. That’s a loss of $61,500. This roll back is taking place across the country and will impact all counties in Washington.
Currently, someone buying a home priced at $700,000 in King County could put 20% down and not have a jumbo/non-conforming mortgage. After September 30, 2011, the same home buyer will need to have 28% down payment (an additional $61,500) for the same scenario. A home buyer not wanting to put more than 20% down and have a loan amount of the new limit of $506,000 will be able to purchase a home priced around $632,000.
With FHA financing, a home buyer in the tri-county area can buy a home priced at $585,000 with 3.5% down payment with the present loan limits. After September 30, 2011, the same FHA home buyer who wants to use the allowed minimum down payment of 3.5% will be reduced to a sales price of $524,000.
This could have a dramatic effect on homes priced between $524,000 and $700,000 in our area as potential buyers will be forced to either come up with more down payment and/or use jumbo financing (which has tighter underwriting guidelines and higher rates than conforming or FHA).
If you’re a current home owner who has been considering refinancing and your mortgage balance is $500,000 to $567,500, I recommend taking action now. Not only will your borrowing power be reduced but local home values may take a hit with the reduced financing options should Congress not extend the limits…I wouldn’t count on Congress (ever).
I wouldn’t wait until September 30, 2011 either. The last time we phased into new loan limits, lenders were very unorganized…it really was a mess. Some may adopt the new loan limits much earlier in order to avoid being stuck with a loan that exceeds the new limit (having a jumbo loan at a conforming rate) on their books.
I feel like Debbie Downer!