$625,000 is a very important number

Towards the end of 2011 there will be a major structural change to available home loans.

The current high-balance loan limits are set to decrease from $729,750 to $625,000.  Starting three years ago the Government, via Fannie Mae and Freddie Mac, increased the maximum conforming loan limit to $729,750 in high-cost areas such as Southern California.

In an attempt to kick-start the economy and allow more Americans to refinance their existing mortgage debt at a lower rate, the Government increased the conforming loan limit to these higher levels.  Unfortunately, with the Federal Government out of money and Fannie/Freddie under attack by politicians from both sides of the aisle, it is very unlikely there will be another extension of these conforming loan limits (like we saw at the end of 2009 and 2010).

When the max loan amount for a conforming loan returns to $625,000, many consumers will lose over $100,000 of purchasing power.

The max loan amount for FHA borrowers will be $625,000.  The max purchase price for clients putting 3.5% down will drop by over $100,000.

Anything over $625,000 will be considered a “jumbo loan”.  Generally speaking, jumbo loans are more expensive, require a 20% down payment and are harder to obtain than conforming loans.

If you are a home-buyer looking in the $625K – $730K range, you may want to intensify your search and plan on closing escrow prior to November 30th.

If you are are thinking of listing your home in the $625,000 – $800,000 range, it’s important for you to know that your pool of available buyers will decrease significantly once these changes go into affect later this year.

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