Posted by Tim Burrell - As a part of the new stimulus package recently signed by President Bush, the loan limits for Fannie Mae, Freddie Mac and FHA loans were increased to 125% of the median price of a home in the area, up to an amount of $729,750. The Department of Housing and Urban Development has released the increased limits for the state of California yesterday, and the limits for other states are expected to follow in short order. The new loan limits are set county by county for the entire state.
There are fourteen California counties where the loan limits for FHA, Fannie Mae and Freddie Mac were raised all the way up to the new $729,750 cap. Most of these counties are in the San Francisco Bay Area and northern California (Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Mateo, Santa Cruz, Santa Clara are on the list) with five more in the Los Angeles area (Los Angeles, Orange, San Benito, Santa Barbara, and Ventura).
Unless you have a large down payment, this increase in the loan limit will not allow you to use these GSE loans to buy a single family home on the Peninsula. However, if you are buying a condo or townhouse, you may be able to use them. The jumbo loans are priced much higher than they have been in the past, so avoiding the jumbo loans by using a conforming GSE loan. For example, in the past, jumbo loans had an interest rate that was 1/8 to 1/4 percent higher than a conforming loan. Now, jumbo loans are around one percent higher. So, homes that can be bought with this lower interest financing will result in much lower monthly payments, which will make their purchase more attractive.
The other effect on Palos Verdes real estate will be that homes in other areas will be easier to sell. So, buyers who are moving from these areas to the Peninsula will have an easier time selling their homes, an d homes on the Peninsula may have an easier time selling. Since jumbo loan rates are way above what they should be, allowing the use of loans with more reasonable interest rates will help the real estate market in much of California.