Conforming Loan Limits … what’s it all about?

Fannie Mae and Freddie Mac each year set criteria on what constitutes a conforming loan. Criteria include debt-to-income ratio limits and documentation requirements. The maximum loan amount is set based on the October-to-October changes in mean home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it. This is because both Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market, making the demand for a non-conforming loan much less. By virtue of the laws of supply and demand, then, it is harder for lenders to sell the loans, thus it would cost more to the consumers (typically 1/4 to 1/2 of a percent.)

MARCH 6, 2008: NEW CONFORMING LOAN RATES ARE HERE!

Old Conforming Loan Limits below

Year
	Single Family
2008	$ 417,000
2007	$ 417,000
2006	$ 417,000
2005	$ 359,650
2004	$ 333,700
2003	$ 322,700
2002	$ 300,700
2001	$ 275,000
2000	$ 252,700
1999	$ 240,000
1998	$ 227,150
1997	$ 214,600
1996	$ 207,000
1995	$ 203,150
1994	$ 203,150
1993	$ 203,150
1992	$ 202,300
1991	$ 191,250
1990	$ 187,450
1989	$ 187,600
1988	$ 168,700
1987	$ 153,100
1986	$ 133,250
1985	$ 115,300
1984	$ 114,000
1983	$ 108,300
1982	$ 107,000
1981	$ 98500
1980	$ 93750
Limits for Alaska, Hawaii, Virgin Islands and Guam are 50% higher. Virgin Islands was designated a high cost area in 1992 and Guam in 2001.Prior to 1984, second mortgage limits were the same as first mortgage limits. Subsequent legislation reduced the limits to 50% of first mortgage limits. Fannie Mae had no second mortgage program before 1981.

2008 Economic Stimulus Bill

A temporary increase in the Conforming Loan Limits for high-cost areas of living has been incorporated into the 2008 economic stimulus package. Congress has authorized an increase of the single family residences limits to the lesser of $729,750 or 125% of the average home value within the metropolitan statistical area (MSA). However, neither Fannie Mae nor Fredie Mac are required to offer loans to those limits.

The bill was signed into law by President Bush on February 13, 2008.^[3]

^Wikipedia

Real Estate Terms of the Week

Certificate of title  
A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Fair market value  
The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Home Market Analysis  
The Home Market Analysis presents an opportunity to review and evaluate the facts before you decide the price you will ask for your home. It also helps you look at your home from a buyer’s perspective. This process will establish a realistic listing price and increase the percentage of qualified buyers who look at your property.

Pre-Listing Inspections: Are They Worth it?

Pre-listing inspections increasingly are being used by agents to give their listings a competitive edge, although it may be difficult to get sellers on board when they insist that inspections are the responsibility of the buyer.

However, there are numerous benefits to using pre-listing inspections on a regular basis. If sellers know about flaws and repair needs ahead of time, they can remedy them in a time frame that is less hectic than when problems arise out of buyer’s inspections.

Additionally, when sellers provide inspection reports to buyers before offers are made, it creates an atmosphere of honesty and trust and decreases the likelihood that deals will fall through after the buyer’s inspection.

Pre-listing inspections allow agents to market homes as “Certified Pre-Owned;” and homebuyers, like those purchasing new cars, are willing to spend more money on properties that have been professionally inspected.

Source: Realtor Magazine

What’s a REO?

Real estate owned or REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank negative equity: the minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any costs associated with the foreclosure sale including attorneys’ fees.

After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a realtor.   Wikipedia

With forclosures on the rise, we’re seeing more and more REO’s.  In the last week, I picked up four new REO’s in the Bay Area.  Sometimes REO’s are in need of maintenance and repairs, but three out of the four I picked up last week were in great condition.  It was apparent that these people loved their homes, but were unable to keep their home.  Unfortunate for those who loose their home, but an opportunity for those looking to buy.

The process of an REO

As a Realtor who handles REO’s, my job is to get the home ready to put on the market. It all starts with a visual inspection of the home and a lot of paperwork.  Depending on what I see, sometimes the home just needs a good cleaning, cleaning up the yard and maybe removing a few items that were left behind.  Other times it means removing piles and piles of junk and trash left behind. 

Once the home is cleared out and cleaned up, there’s more paperwork.  I fill out a lot of paperwork, including a BPO (Broker’s Price Opinion) where I compare this property with other similar properties in the neighborhood/area that are currently listed, pending and just sold.  Based on the condition of the property, repairs needed (if any), number of homes for sale and market conditions, I come up with a suggested list price for the home and send the paperwork to the bank to review.

Next, an appraiser is sent to the property to set the value of the property.  Based upon the BPO and the appraisers value a listing price is determined.  At this point, there is more paperwork and waiting for bank approval to actually list the home.  This can take 4 weeks or 4 months.  During this time, we make sure is home is maintained until it is listed and sold. 

Once the listing is approved, the sign goes up and we look for offers.  The prices on REO’s are based on current market value and generally are discounted prices. For example, I am working on a 1,900 sq ft – four bedrooms home in the East Bay that in January 07 was listed for $479,000.  It did not sell.  They lowered the price over the next year down to $309,000 and the home still did not sell.  Based on what’s going on in that neighborhood and the surrounding area, we are looking to list the home for $279,ooo!  It’s unfortunate for some, but an opportunity for others.

REO’s can be a great investment for investors and regular individuals looking to buy a home. It can also be a more complicated process to purchase a REO home but working with a experienced Real Estate Agent can help make the process fairly simple.

Whether you’re looking for a place to call home, or if you’re looking to invest, REO’s are one way to get a home at a good price. 

HOME SALES DECREASE 29.8 PERCENT, MEDIAN PRICE FALLS 21.9 PERCENT

Home sales decreased 29.8 percent in January in the state of California compared with the same period a year ago, while the median price of an existing home fell 21.9 percent, C.A.R. reported February 25, 2008.“This most recent decrease in the median price is yet another result of the liquidity crunch, which has choked off sales in recent months for nearly half of California’s housing market,” said C.A.R. President William E. Brown. “Sales do appear to be edging up, but recent declines in the median price have been due to a lack of sales in the over $500,000 range, where funds are extremely scarce and jumbo loan rates are at near-record margins compared to conforming loan rates.”

Closed escrow sales of existing, single-family detached homes in California totaled 313,580 in January at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity decreased 29.8 percent from the 446,820 sales pace recorded in January 2007.

Source: California Association of Realtors