Buying a Higher-Priced Home is About to get Harder for Some



Conforming loan limits in Plainsboro and Princeton Junction and Robbinsville nj

Why you may need to be concerned about the impending decrease in conforming loan limits:

If you are considering purchasing a home around the 700,000+ price range this year, you may need to do so before October 1, 2011 or your mortgage may be harder  to get and more expensive.   Some of the conforming loan limits in New Jersey and across the country will be reduced on October 1, 2011, and it may be more difficult or impossible for some people to purchase the home they want after the new, lower, limits go into effect. The areas most affected in Central New Jersey are Middlesex, Somerset, Union and Monmouth Counties.

Mortgages that are higher than the conforming loan limits are considered “jumbo loans.”  Jumbo loans carry higher interest rates, more stringent qualifying standards and require at least 20% down payment. The reason for this is that Fannie Mae and Freddie Mac are only allowed to purchase or guarantee “conforming loans.” The result is that non-conforming, or jumbo loans, are riskier to investors and banks since they are not guaranteed and can’t be sold to Freddie or Fannie. Banks will often be able to sell these loans to investment companies and need to hold on to them — making money the old fashioned way: loaning money at a higher rate than it costs the bank.

Now, on to the limit changes: In Middlesex County, NJ for example the current conforming loan limit is $729,750. This amount is scheduled to revert back to $625,500 on October 1, 2011. The same amount will apply to Monmouth County, Union County, Somerset County as well as most of the more expensive central and northern NJ counties. What this means is, if you are buying an $800,000 home in Plainsboro or South Brunswick, for example, you’ll need at least $175,000 for a down payment after October 1, instead of $75,000 before October 1 if you want the lower rates and less stringent qualifying standards of a government backed loan.

Other counties in Central New Jersey, like Mercer County, will not see a change in the conforming loan amounts. But it’s still not good news: Mercer County, NJ has some fairly expensive areas such as West Windsor, Princeton, Hopewell and Pennington yet the jumbo loans kick in at just $440,000 in Mercer County and that is not set to go up or down this October. Unfortunately, the conforming loan limit is determined by the average price range in a County and the lower overall prices in Mercer County means not getting a conforming loan above $440,000.

I met with a couple recently who were saving for a down payment to purchase a home in Plainsboro and thought they’d have enough to purchase a home by this time next year. Unfortunately, they will need even more than they planned on saving if they are going to buy a home next year. We were able work out a plan for a smaller down payment and a second loan in order to have the first loan be under the conforming limit this year and their savings will go towards paying off the second loan by this time next year. They were fortunate to have discussed this with me before finding out all their saving would not have added up to enough for a home purchase a year from now. In addition, mortgage interest rates have been on an upward trend and if that continues, as predicted, some people will be forced to scale back on their home purchase significantly by this time next year. If you are planning to purchase a home in 6 months to a year or more from now, let’s take a look at your situation and find out if it might make save you a lot of money by investing in a home before October 1, 2011.

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