The US Senate passed an expanded version of HR 5140 - an economic stimulus package that includes a temporary increase in the conforming loan limits from $417,000 to as high as $729,750 in high cost areas. It is expected to be passed by the House and signed into legislation. The emphasis here is on temporary.
So how does this affect you and the markets you are in? I'm a member of the CMPS Institute and they have released some quick guidelines;
"The two things you must know in order to determine if you are in a high cost area:
1. You must know the formula. If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750.
2. You must know the median home price in your area. According to HR 5140, the Secretary of Housing and Urban Development will publish the median house prices within 30 days. We contacted the Public Affairs office of HUD directly to ask if there is anything definitive to reference in the interim, and they said, "no." The Wall Street Journal published median house prices recently, and you may want to reference this information to get an idea of which areas will exceed the $417,000 limit. The median housing prices can be found in the second graphic on this web page. In order to see the median housing price in descending order, click on Price ($) in the chart. "
As an example, in my area, Portland OR, the median home price is $297,629. Using the formula, we would arrive at the following
Median Home Price: $297,629
Temporary Factor: 125%
Temporary Loan Limit: $372,036
In our case, the old limit of $417,000 stays in effect.
If the HUD uses current published prices, the median Home Price is going to need to be at least $335,000 for you to be able to refinance a Jumbo loan into a conforming loan.
My 2 cents: While this will help some of the hardest hit areas, it still falls short. Areas with a lot of low priced home skew the median home price. In every market there are pockets of areas that are more expensive then others. It also doesn't necessarily account for the average income in an area. We have a lot of high priced home that won't move, in large part due to Jumbo pricing and the inability to get 2nd mortgages.
Anyway, for those of you that will see relief, go to work!!
Let me know how these changes affect you.
Update: Andy Perry caught an error in my calculation so I corrected it. Thanks Andy
Larry Morris is a Certified Mortgage Planning Specialist in Portland, Oregon. He specializes in USDA Guaranteed Rural Home Loans, FHA Purchase and Refinance, FHA 203k Rehab loans, FannieMae HomePath loans, Oregon VA Loans and conforming purchase and refinances in the states of Oregon, Washington and Idaho.
He can be reached at 503-421-0096.
So let me see if I understand this. If I own a home that cost $650,000 and I got in that home on an arm that is about to adjust if my area qualifies I can refinance into an FHA. Yea!!!
The thing is I have to now qualify for this loan and before I did not qualify thats why the lender put me in the arm in the first place.
With that scenario it may not help many people who are about to be in big trouble in my area!
Endrea. Not necessarily so. These are the FHA temporary home prices, but the loans do not have be be orginated as Full Document FHA loans. This now means that any loan that previously was limited to the $417,000 cap now might be doable at a higher loan limit. This opens the doors to Stated Income, No Ratio and even a few No Doc loans.
But yes, you still do have to qualify under much stricter guidelines. But that said, if you can document your income, the FHA is doing some amazing things. This just opens the door for some who otherwise didn't have the opportunity.
Well that is good to know. Thanks for clarifying that for me.
I think the stricter guidelines are going to be the hurdles.
Good question Maria, It really will depend on your market. If you are in a market below the new limit, there will really be no effect due to this Bill. If you are in one of the high cost areas, SF, LA... , then it will actually help you get into a home as it will raise the conforming loan limit from $417,000 up to as much as $729,750.
Of course, there will be homeowners who decide to refinance instead of sell. This could have a localized affect on home prices, but there will still be plenty of great properties for sale. As Endrea, pointed out, borrowers still have to qualify for the loan.
It appears that the bill could go into effect fairly quickly, but who knows how long until HUD decides what the median prices actually are. Who's numbers will they use or will they create their own?
Once it does, watch the loan numbers sky rocket in the highest markets.
So, a long winded answer to your real question, if you are in a high cost market, and have a home picked out, it might make sense to make an offer with a close date far enough out to take advantage of the new limits. If you are not in a high cost area, don't worry about it...
Hi there,
Thanks for the clarification. So are your soures telling you that this will be the plan as far as the "loan limit" aspect of the stimulus pakage goes? It might be too early to say but I am curious if it is too early to count on this as done deal or if it could completely change.
Thanks!
A Perry
Mgregory- I'm not sure if that is in the scope of this legislation. Are you referring to Debt to Income ratios being increased?
I am a first time homeowner being in the house 3+, intrest only at 4.75%, but now has adjusted to 4.85%. I do have a 2nd at intrest only for 75k, arm. I have been unemployed for the last 12 mos, (depleteing my savings), but the mortgage has always been paid. Can this bill help me or should I just stay where I am? Will anyone even consider refinancing me?