Buyers of luxury homes in the US are expected to face higher mortgage rates and heavier down payments, following the latest rules announced by the federal government, effective 1 October 2011.
Currently, Freddie Mac, Fannie Mae and the Federal Housing Administration can acquire and guarantee mortgages of up to US$729,750. With government support, borrowers can put down a minimum payment of 3.5 percent and still benefit from lower interest rates.
But starting October 2011, the government will no longer support loans above US$625,500. Loans exceeding this limit will be considered “jumbo” loans, which normally require 20 percent (or higher) down payments and offer higher interest rates.
Under the new mortgage limits, the buyer of a US$750,000 unit will have to put down at least US$150,000, much higher than required of a government-supported loan.
“If they want to buy something that’s US$750,000 and all they have is 10 percent to put down, they’re not buying that house,” said Carl Nielsen of Mortgage Masters.
Robert Wilderotter, a mortgage broker at Real Estate Mortgage Network in River Edge, said that the lower limit is expected to put pressure on home prices.
“If the change creates a falloff in demand or lack of affordability, it’s certainly possible you could see a falloff in home prices,” agreed Keith Gumbinger of HSH.com. He predicted, however, that the drop will be minor.
Freddie Mac, Fannie Mae and the Federal Housing Administration once supported mortgages of only up to US$417,000. But following the financial meltdown in 2008, the limit was provisionally bumped up to US$729,750 in the country’s most expensive residential markets, such as North Jersey.
The new mortgage rules were opposed by the National Association of Home Builders (NAHB) and National Association of Realtors. The NAHB noted that a recent study conducted by its economists revealed that a change in the mortgage limits “will reduce housing demand and place downward pressure on home prices.”
The NAHB added that about 5.3 million owner-occupied homes nationwide could be affected by the implementation of the new mortgage limit.
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