Lower Loan Limits for Fannie Mae and Freddie Mac Make it Harder to Buy Homes
Sep 5th, 2011 @ 5:28 AM by Debbie Dragon
On October 1st , Fannie Mae and Freddie Mac will lower the loan limits for home loans they buy from lenders, according to an article on USAToday.com. The consequence of this change is that it may force prospective home buyers to get into a much more expensive loan, and a loan that will be much harder for them to acquire.
In 2008, Freddie Mac and Fannie Mae raised loan limits to help stimulate the economy, from $417,000 for single family homes to $729,750. Starting next month, that limit could fall as low as $625,500 in some areas, depending on the local housing markets.
Many lenders, including Bank of America, JP Morgan Chase and Wells Fargo have ceased taking any new mortgage applications so they can focus on closing the applications they currently have by the October 1st deadline. This has caused a crunch for borrowers and sellers to meet the deadline, and lenders are trying to keep up with this surge of sales for people eager to get locked into the lower interest rates before they increase.
With these new lower-limit loans, borrowers can expect loan interest rates to increase. For example, on jumbo loans which have been averaging a 4.5% interest rate, borrowers can now expect about 5%. Future buyers can expect to have to pay a minimum down payment of 20% to get into their homes.
Many experts agree that this move from Fannie Mae and Freddie Mac is going to isolate a lot of potential buyers, and remove them from the housing market all together.
Bank of America expects to close all current loan applications before the changes in interest rates, as it stopped taking new applications in mid-July. If you’re just starting the borrowing process for a mortgage now, you’re most likely going to miss out on today’s interest rates.
These changes will affect buyers as they will have to reconsider house sizes and markets, as well as come up with larger down payments and pay steeper interest rates on top of that. Lobbyists do not feel there is any hope to get congress to appeal this action taken by Freddie Mac and Fannie Mae.
Debbie Dragon is a full time freelance writer and the co-owner of ReliableWriters.com.
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