Mortgage rates are impacted by the loan amount, and eligibility for a loan can be impacted as well. The vast majority of home loans are ultimately funded by Fannie Mae, Freddie Mac or the Federal Housing Administration. These agencies set limits on the maximum loan amount they will make, and since about 2009 loan amounts of $417,000 have been restricted to certain high cost areas and currently are capped at $625,500, except for FHA, which is $729,750.
If a borrower does not want a FHA loan but needs a loan greater than $625,500, then he will need what is known as a portfolio loan, which often comes with stricter qualification guidelines. It rarely is a 30-year fixed and usually has a slightly higher rate.
As the federal government tries to decide the degree that it wants to be involved in the home loan business, there was considerable speculation that the first shoe to fall would be to lower loan limits in high cost areas, which around here includes Eagle, Summit, Pitkin and Routt counties.
The thought of this change rightly caused alarm in groups such as the National Association of Realtors and many mortgage industry groups who lobbied heavily against the change. Mortgage money is the cheap gas that keeps the real estate economy train moving, and that train carries a lot of momentum when it comes to jobs and economic growth. As any homeowner knows, when you buy a house you end up buying a ton of things shortly thereafter that you probably did not anticipate you would need. These groups saw that such a change would hamper the growth of the housing market and the economy as a whole.
This week, the head of the Federal Housing Finance Agency (who oversees the other government agencies that actually lend the money) made the long anticipated announcement and said that for 2014 at least, loan limits would not change.
This means home buyers in Eagle County and the surrounding areas will find it easier to qualify and get a lower rate if they need a conventional loan between $417,000 and $625,500. The rate will be about 1⁄8 percent higher on a loan of this size than a loan under $417,000 and the down payment requirement will be at least 10-20 percent. But qualifying for a conventional loan such as this is generally easier than a portfolio loan.
For those who need a loan of more than $417,000 but are down payment challenged an option for an owner occupied purchase would be a FHA loan, which can go to $729,750 and only requires a 3.5 percent down payment. Conventional financing under the $417,000 limit now requires a 5 percent down payment.
This combined with a couple of other bits of good news lately should help the real estate market stay on course. Fannie and Freddie recently announced that buyers who had experienced a shortsale or did a deed-in-lieu of foreclosure would be eligible to apply for a new purchase money loan within 36 months (previously that was a 7-year limit). FHA will entertain loan applications from borrowers with a foreclosure three years ago.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.