Homes With Heart – Heather Coombs-Perez

In real estate and banking circles, there has been much talk about the decrease in the conforming and FHA high balance loan limits set to take place on October 1, 2011. This decrease from $729,750 to $625,500 for single family homes will result in greater numbers of buyers requiring “jumbo” mortgages in order to purchase modest homes in a metropolis such as Los Angeles.
A jumbo mortgage is a mortgage loan in an amount above the conventional conforming loan limits acceptable to Fannie Mae, Freddie Mac or FHA. The current high balance limits vary by county. Fannie and Freddie are large government backed agencies that invest in the majority of U.S. residential mortgages from banks and other lenders, allowing banks to free up cash so they can lend more money for mortgages.
When a mortgage is issued, the bank originates the mortgage then sells it to Fannie, Freddie or a private investor in the secondary market. With the loan limits decreased, Fannie and Freddie will no longer purchase mortgages in excess of $625,500, resulting in banks issuing these mortgages as “portfolio” loans. i.e. the bank retains the loan and the risk associated with it. With the housing market volatility, banks may be reluctant to issue these higher-risk loans to any but the most qualified of borrowers.
In terms of borrowers, obtaining a jumbo mortgage generally means paying higher interest rates and being presented with limited options when it comes to financing. Jumbo mortgages also tend to require you have a 20% or more down payment, or significant liquid assets, in order to qualify.
According to Peter McNally, Private Mortgage Banker with Wells Fargo Home Mortgage, the bank will also look more closely at your past relationship with them, almost in a return to old school banking.
“Jumbo mortgages are harder to qualify for, usually requiring more money down and more assets or reserves. Some banks now assess your assets and banking history before extending you any credit, and having deposits with the bank can help,” he said.
For first –time borrowers who typically scrape together everything they have to get their first home, the need to qualify for a jumbo mortgage may price them right out of the market.
My best advice—if you know you require a mortgage that exceeds the decreased limit of $625,500, buy now! Get your financing in order and have all your paperwork completed by the deadline, or you may find yourself without a mortgage to stand on.
On the flip side, if you decide to wait to buy a home make sure you continue saving. In the meantime, get to know an experienced loan officer and discuss your options. There may be new financing options that become available when these loan limits become effective. With a purchase of this size you can never do enough planning and research!
For more information about different mortgage strategies and advice, contact Peter McNally, Wells Fargo Home Mortgage at 310-285-5962 or at [email protected]. You can also visit the Mortgage & Insurance page on our website at or contact me directly at 310-259-7419.

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