Updated Loan Limit Decrease

Great article on McEnearney's Facebook Page today! See below...

Beginning with loans locked on or after October 1st, the temporary conforming limit for the DC Metro area will be reduced from $729,750 to $625,500. With the nationwide conforming limit at $417,000, and the conforming jumbo loan limit not to exceed $625,500, our area has enjoyed the use of this higher temporary limit since it was introduced in 2008 through the Housing and Recovery Act.


These temporary limits expire September 30th, 2011. Congress has the authority to extend these temporary limits allowing the Federal Housing Finance Authority (FHFA) to authorize Fannie Mae and Freddie Mac purchases of these loans once again.


A bill sponsored by representatives John Campbell (R – CA) and Gary Ackerman (D – NY) has been introduced to the House requesting the extension of these limits until October 1st, 2013. Additionally, pressure is building from industry groups such as the Mortgage Bankers Association for this extension as well. However, until a bill authorizing an extension is passed, we must assume that the decrease will come to pass.


This will have an impact on what purchasers can borrow without putting a full 20% down payment. With the current limit a purchaser can borrow the full $729,750 using mortgage insurance, with only a 10% down payment on a purchase price of nearly $811,000. Alternatively, they could also borrow the $729,750 and use a second mortgage of $100,000 (our current maximum if the Combined Loan to Value ratio over 80%). This would allow for a purchase price of nearly $912,000.


With the new limit of $625,500, a purchaser would be limited to a purchase price of $695,000 with standard mortgage insurance, or almost $116,000 less than currently possible. If the borrower were to take out a second mortgage, this would allow for a purchase price of up to nearly $782,000 (using a $625,500 first and a second of $78,300). This is approximately $130,000 less than the current maximum allowable.


Let’s put this into perspective: According to the Laurie Felton, the McEnearney Associates “numbers wizard”, for the first half of 2011, approximately 650 settlements have occurred in the DC Metro Area with closed prices between $811,000 and $912,000. These purchases could potentially be at risk with the new, lower, limits. If you share our concern about the potential impact on the market, support efforts by Campbell and Ackerman to extend these temporary limits!