SubscribeWhat Does The Change in Conforming Loans Mean To ME?
February 19, 2008
. . . Said my friend Amy to me the other day. Since she is sort of a typical first time buyer, (actually not), I decided to make an example of her and contribute to her 15 mins of fame.
Amy is your somewhat typical Sillycon Valley MBA tech-marketing type. She works in marketing for a large company, so her income is derived from her salary, as opposed to commissions or stock options that may or may not vest. The company is stable, so her bonuses tend to be consistent and her income fairly predictable. She recently moved from one giant tech company to a large one, so she has a number of years of experience in her industry and job classification, excellent credit, and some equity from a condo that she sold.
Being an MBA, and financially conservative (politically liberal), she can comfortably afford something in the $650K price range, even in the current lending environment. The previous idea was for her to take out two mortgages, a conforming loan of $417,000, and then a second or equity line to cover the rest.
Now that Mr. W. has signed off on the stimulus package that included a short-term increase in the conforming loan limit for 2008, Amy’s interest in buying a house has gone up. The tax rebate will let her buy her kids a happy meal and some new jeans, so her interest is much more in the mortgage changes.
At the time of our conversation, the difference in rates between a conforming (under $417,000) and jumbo ($417,001+) loan was about .75%, depending on a million things, which I will leave to co-contributor Eric Trailer to explain. Jsut plugging in some numbers, on a loan of $585,000 (10% down on our $650K house), her payments would drop about $4300 a year excluding taxes if that loan was at the lower rate. Now we are talking interesting.
Admittedly, this is very simplified, because it doesn’t take into account the cost of a conforming first and then a second, or whether lenders will have tiered pricing based on the loan amount, or credit scores, documented vs. non-documented income, etc., etc., etc.
My intent is to show the effect of this new law on “normal” Silicon Valley home buyers who have “normal” jobs, and are trying to put a roof over their heads. While the tax rebates of a few hundred dollars will only have minor impacts on most of us (I get $300, I think), the effect on home buying capability will be potentially significant.
Let the comments fly, and thanks for reading.
Comments
3 Responses to “What Does The Change in Conforming Loans Mean To ME?”
Got something to say?
Beautifully done, Chris! Yes, conforming loan rates today are quite attractive versus jumbo rates for the most part. That written, we have a 5-year`fixed at 4.99%! My prediction is that conforming rates will rise and jumbo rates will decline as we approach and move past July 1, 2008. Why? The additional market made, combined with the economy being stimulated will narrow the rate gap between jumbo and conforming loans. What to do? Especially if you’re a first-time buyer or an investor, NOW is the perfect time to take advantage of the conforming rates…
Cheers,
ET
Um, why was important to point out that Amy is politically liberal?
I stumbled on this article by accident today, and read it to see if I could get some clarity on what’s going on (since conforming rates are changing YET AGAIN). Sure, the information is old, but every piece of information contains a grain of wisdom.
But that one part of paragraph 3 bothered me. Why was it included? Perhaps it’s OK to be sloppy as long as our politics are good? Or is there some other message being sent?
Rick,
Thanks for your comment. You are right, it’s not important. I was commenting on the contrast to her financial approach (20% down payment, 30 year fixed loan), and because she is very outspoken and active politically. This was written in February 2008, which was a more politically active time, and her question about conforming loans was part of a politically oriented conversation (as are pretty much all of hers).
Please excuse me if I offended you.
You are right, the high conforming limit is returning to $729,000 for our area, and as of today (March 6, 2008) lenders are still working on pricing. I’m hoping it will have a positive impact on the townhome/condo market on the Peninsula as buyers would be able to purchase higher priced homes will small down payments, assuming that the underwriting guidelines are the same as last year.
Chris