Are New Mortgage Limits a Problem?

Are New Mortgage Limits a Problem?

Although we’ve all heard about the new mortgage limits going into effect earlier last month, they may not actually be able to save the day. In fact, some experts believe that the lower conforming loan limits might even increase mortgage rates (not good for people hoping to move in with a deal) and even further decrease home prices (no good for sellers)!

In the coming months, now that the new lower loan limits are in effect, prospective homebuyers and sellers might be running into a few more bumps in the road. The new limits on conforming loans, which are loans eligible for government guarantees, might influence lenders to tighten their belts even more. If that happens, it doesn’t look like these new mortgage limits will do any good for people trying to buy or sell homes.

So, what’s about to happen? Since October 1st when the new limits took effect, banks and lenders are taking their time implementing the changes. Some started changing their rates before the loan limit rollout while others just started the process. But, what do these new mortgage limits mean for people trying to move in or out of their homes?

Well, basically to shore up the housing market, which has been faltering for the past couple of years, Congress took measures to increase the maximum loan amount various government-sponsored entities (Freddie Mac and Fannie Mae) could guarantee to homebuyers. The high, in some markets, was boosted to almost $730,000. These boosts should make it easier for borrowers in the higher-priced markets to get mortgages because their lenders were guaranteed payment even if the buyer defaulted.

However, with the new limits implemented, that guarantee still exists, but just at a lower rate. The rate has been reduced to a mere $625,000 – and that probably terrifies lenders, who are now moving really slowly at lending any money to anyone.  But, where does the brunt of this change actually fall?

Just look at the middle-of-the-market buyers and those middle class families hoping to move into a new home to make a better life. Then look at sellers trying to sell homes in more expensive markets.  Prospective buyers will probably see higher mortgage rates in the coming months, some which even exceed the new caps, which are referred to in the business as ‘jumbo loans’.” This would ultimately increase the overall cost associated with owning the home. This would likely discourage prospective buyers from even shopping around. In other words, a lot less relocations would be happening and no one would be moving around.

These new mortgage limits might also influence people to start looking more closely at moving into less expensive properties than they once would have. Either way, these new mortgage rates are definitely going to affect the entire market, in every way. We’re just holding out to see exactly what takes place.

Jon Huser