Mortgage conforming loan limits to decrease come September 30
May 2011 12

Conforming loan limits on new mortgage loans are scheduled to decrease in Boston and in most major metropolitan areas, this September 30th.

What this means is that high-end condo buyers may have to come up with larger down payments and/or pay higher interest rates when trying to get loans to finance their home purchases.

The New York Times has the story about how federal agencies that guarantee almost all new mortgage loans will tighten eligibility and reduce conforming loan rates.

Once a standard $417,000, the maximum qualifying loan amount was increased to $729,750 in some counties. In Suffolk County, where Boston is, the limit is currently $523,750.

In October, it will be reduced to $465,750.

What this means is that if you’re borrowing less than that amount, your loan can be guaranteed by the federal housing agencies. Because your lender is therefore carrying less risk, your loan will come with a lower interest rate.

If you can’t qualify because you’re taking out a larger loan, you’ll have to pay a higher interest rate.

But, not only might lenders charge you a higher rate, to protect their investment, they might also require you to put more money down, say 30%. This is because if you default, the bank only has the remaining 70% at risk, and presumably they would be able to sell your home after foreclosure for at least 70% of what you bought it at.

In the Times’ article, the author calls higher-priced properties “upscale” housing, but in Boston this is just “housing”. Anything larger than a one-bedroom condo in the downtown Boston neighborhoods will cost you more than $500,000.

What this could mean is fewer buyers for high-end properties. Which in turn might mean some properties might come down in price. Most likely, I think, it means the open market will take up the slack, offering alternatives to buyers than the traditional, guaranteed loans. These third-party loans, however, will probably come with higher interest rates.

More: Fed Retreat on Big Mortgages May Hurt Upscale Housing – By David Streitfield, The New York Times

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