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What does the new economic stimulus package mean for you? Well, if your family's yearly income is below $150,000, you will be getting a tax rebate check. But the more significant news for the real estate market is that the government raised the conforming loan rate, allowing government-sponsored agencies Fannie Mae and Freddie Mac to purchase loans above the traditional $417,000 level.
This is very significant for homeowners and home-buyers in the region, because we live in a relatively high average-sales-price market. Accordingly, because the traditional limit for conforming loans prevented many purchasers from obtaining conforming loans, they had to turn to "Jumbo" loans with higher rates. The spread between the conforming loan rate and the Jumbo loan rate has extended considerably in the last six months during the recent mortgage market disruptions, with the Jumbo rate often above 7%. Indeed, the difference between a conforming loan rate and a Jumbo rate for the average purchaser in Westchester, Rockland, and southern Orange County was often as much as $500-1,000 per month.
How high is the conforming loan limit? We don't know yet. The new legislation sets the conforming loan limit at 125% of the median sales price for the region, with a maximum of $729,750. We expect that the conforming loan rate in our area to go up significantly from $417,000, and if the government counts Manhattan in our "region" it might extend to the maximum limit.
Any increase in the conforming loan rate would be welcome, because it would have the following effects:
Homeowners who currently have a Jumbo mortgage will be able to refinance their loan into a conforming loan, and save hundreds of dollars a month in payments. We expect to see a refinancing boom in our area as a result. Unlike the 2004 refinancing boom, however, that was based on homeowners pulling equity out of their homes, we think that this boom will be based largely on people reducing their monthly payments.
Home purchasers, people currently in the market, will be able to obtain a loan with a lower rate, allowing them to afford more home. We expect this might help a lot of buyers come off the sidelines and get into the market.
Home sellers, people with their homes on the market, will find a larger pool of buyers interested in their homes. They also might be able to retain more value in their home, and seller for closer to their asking price, because buyers can get a better rate.
If you have any questions about your current mortgage, or about your buying power for purchasing a home,
contact your Rand Mortgage mortgage officer here.
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Prudential Rand Realty is the largest real estate brokerage in the Greater Hudson Valley with 21 offices in Westchester, Rockland,
Orange and Sullivan counties. Based on market share, Rand is the No. 1 real estate company in Rockland, No. 1 in Orange and No. 3 and
the fastest growing in Westchester. The company has more than 700 sales associates.
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