Mortgage Lending Made Simple

The House of Representatives has passed a bill raising the Fannie Mae Freddie Mac loan limit from $417,000 to $625,000. The bill is on its way to the Senate and President Bush has indicated that he will sign the bill should the Senate pass it.

This is a potentially promising development for home buyers and home owners in high cost areas like the Washington Area MSA. At the current time, conforming loans (i.e. those currently under $417,000) carry interest rates about 1% below jumbo loans (i.e. those currently over $417,000).
If this bill passes, it will be a big benefit to buyers who wish to borrow up to $625,000 or current homeowners who have existing mortgages up to $625,000 who wish to refinance.

Let’s take a look at what this may mean from a dollars and cents point of view.

Let’s take a $625,000 loan.
At 6.375%, the monthly payment for a 30 year fixed rate loan is $3,899.19.
At 5.375%, the monthly payment for the same loan would be $3,499.82 or $399.37 less per month.
In terms of qualifying for a loan, this $399.37 reduction in payment will reduce the income needed to qualify for this $625,000 loan by approximately $1,200 per month.

This will help with a great number of the larger homes in our market and help reverse the downward movement in prices.

While it is too early to predict if HUD/FHA will follow suite, the increased Conforming Limits certainly opens the door for HUD/FHA to follow suit and increase their Limits which would have a far greater impact on more borrowers and areas that are not currently in the High Cost Designated areas of the country.

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