Changes to High Balance Conforming Loans will affect Silicon Valley Real Estate

FineHomeMoves - Intero Los Gatos

If you’re planning to buy a home in Silicon Valley this year you need to be aware of changes afoot in the loan business.  As of October 1, 2011, high balance conforming loan limits in the Bay Area are set to be reduced from $729,500 to $650,500 for a single family dwelling for both conventional and FHA mortgages.   That’s a reduction in borrowing power of $79,500.   The loan limit reduction is taking place across the country and will impact all “high balance exception” counties in California, including Santa Clara, San Mateo and Santa Cruz.

Currently, someone buying a home priced at $900,000 in Santa Clara County can put 20% down and not have to take out a jumbo/non-conforming mortgage.  After September 30, 2011, the same home buyer will need to have 28% down payment (an additional $79,500) in order to avoid a jumbo loan scenario with higher interest rates.  A home buyer not wanting to put more than 20% down with a loan amount of the new limit of $650,500 will be able to purchase a home priced around $814,000.

With FHA financing, a home buyer in the Bay Area can currently buy a home priced at $756,000 with a 3.5% down payment.  After September 30, 2011, the same FHA home buyer with 3.5% to put down will be able to buy a home priced at $674,000, a significant reduction in buying power.

Come October, homes in the $814,000 to $900,000 price range may find it harder to sell as previously qualified buyers can no longer afford the home.  It will be interesting to see how that affects prices in that specific segment.
If you’re considering buying or refinancing and plan to make use of non-conforming loan limits don’t wait until August when the banks will already be inundated with the pre-deadline rush.   They may even have cut-off dates much earlier than August in order to avoid having non-conforming loans on their books past the deadline.


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