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July 6, 2011 / Arlington Unwrapped

What Arlington Residents Need to Know About New Conforming Loan Limits….

Whether you own a home, are thinking of buying a home, or could be selling a home in the near future, it’s a good idea to take a few minutes and familiarize yourself with what the new conforming loan limits and what they will mean. The new loan limits that go into effect October 1, 2011 matter in Arlington – in fact places like Arlington are where they will matter the most.

First a little history lesson:  The current “temporary” loan limits were introduced in 2008, as part of the federal government’s economic stimulus initiative. Private mortgage lending then was in a state of crisis, so for those looking to finance or refinance a home, Freddie Mac and Fannie Mae were the only alternative. The problem was, at the time, the national loan limit for Fannie and Freddie was $417,000 – which left homebuyers in so-called “high cost” areas like Arlington in a lurch. If a buyer couldn’t afford to bring a large enough down-payment to the table (one that would bring the amount they were borrowing to $417,000 or less), then they couldn’t afford to buy a house.

In Arlington – where the average single family home starts around $500,000 and many exceed $1 million – the loan limits in place then created insurmountable obstacles towards buying a home.

Our county is a good example of why, in 2008, Congress approved letting Fannie Mae and Freddie Mac secure mortgages for more than $417,000. The national limit stayed at $417,000 but each US metropolitan area was assigned a temporary allowable conforming loan amount that was equal to 25% more than that area’s median home sale price – up to $729,750. Under that current standard, Arlington and many surrounding DC-area communities are allowed the maximum loan amount of $729,750.

 But only through September 30th, 2011. Because that’s when the temporary loan limits expire.

After September 30th, the conforming loan limits for what the government will assume the default risk on in “high-cost” areas will be reduced: loan sizes can be equal to 15% more than local median home prices, not to exceed $625,500.  This means that homebuyers will have to come up with a larger down-payment in order to bring the amount they are borrowing to $625,500 or less OR they will have to borrow more at traditionally higher-interest non-conforming “jumbo” mortgage rates (which also usually require a larger down-payment and have more stringent underwriting guidelines, i.e. higher credit scores, income levels, etc..).

Not only will the new loan limits make it cost more to borrow the money, it will in fact effect how much you can qualify for.

ACT NOW if you are considering homes in Arlington in a price range that requires borrowing more than $625,500. If you intend to purchase a home under the current conforming loan limits, you would most likely need to be under contract by September 1st. For conventional financing, the note date must be issued on or before September 30th. For FHA financing, loans must receive credit approval on or before September 30th.

How does the new conforming loan limits affect current homeowners in Arlington?

If you are thinking of selling your home, depending on your price range the new conforming loan limits could reduce the number of eligible buyers for your property, thereby putting downward pressure on your potential sales price. Therefore it may be a better bet to put your house on the market now (even in the traditionally slower late summer season) rather than listing it in the fall.

Think about it this way: Say you are selling your single family home in Arlington for $800,000. A buyer approved for the max conforming loan amount of $729,750 and putting 10% down could afford to purchase your home. When the loan limit is lowered to $625,500, even if the buyer *could* miraculously afford to put 20% down, they still would not be able to purchase an $800,000 home using a conforming loan. Sellers may literally be in the position of lowering a sales price to one that allows purchasers to meet the new conforming loan limits.

Loan limits will also impact homeowners because the limits apply to home refinancing as well. If you need to refinance a mortgage that is above $625,500 – start initiating the process immediately.  Also, if the new loan limits do indeed spur a downward trend in home sale prices, this would affect the amount your home would appraise for, which is a condition of your refinance.

While Arlington’s healthy job market, proximity to DC, prevalence of public transportation, and popular school systems have afforded our housing market certain protections – we are not immune to changes in the marketplace. The best way to weather these changes is by making smart, informed decisions and then acting quickly.

Have questions or feedback? Hit us up below!

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