Find a home, then weigh your loan options

First home or last home, it simply makes more sense to shop for the home, then the loan.

If you have been waiting for interest rates to come down before driving around and checking new homes, get in your car and go. It makes more sense to find the home you want and begin living there.

Why? Most of the time, especially with home prices rising in the Puget Sound area, the equity you will accrue in appreciation will far outdistance the difference you will receive if mortgage interest rates go down. The truth is that home loan rates are lower now than they were a year ago, regardless of how many times you’ve been told “rates are on the rise.”

And, despite what you hear about “needing a tax deduction,” don’t go out and buy a home simply for the mortgage interest rate deduction given you by Uncle Sam. While there is a definite tax advantage to homeownership (especially if you don’t have the time to invest all of your extra dimes), the decision to buy should be domestic, not driven by taxes.

Beginning this weekend, greater amounts of mortgage money will be available at the best “conforming” interest rates possible. Fannie Mae and Freddie Mac, the two biggest players in the secondary mortgage market, are permitted to make an annual adjustment to the maximum size of mortgage loans the two companies may purchase. They now will purchase single-family mortgage loans up to $359,650, effective Jan. 1. The previous limit on single-family mortgage loans was $333,700.

Also effective Jan. 1:

* $460,400 for mortgages on two-family properties or duplexes, up from $427,150.

* $556,500 for mortgages on three-family properties or triplexes, up from $516,300.

* $691,600 for mortgages on four-family properties or fourplexes, up from $641,650.

The limit in designated high-cost areas – Alaska, Guam, Hawaii and the U.S. Virgin Islands – will be 50 percent higher for first mortgages.

The Federal Housing Administration also increased its loan limits for 2005. FHA, part of the U.S. Department of Housing and Urban Development, lifted its ceilings to $312,896 (87 percent of the Freddie Mac limit) in about 40 domestic areas, including Seattle. The FHA floor in 2005, or the maximum loan amount in many rural areas, is $172,632 (48 percent of the Freddie Mac limit).

Two special loans administered through FHA, the Title I and Section 203(k) programs, have become extremely popular. A Title I loan allows you to borrow up to $25,000 for improvements to a single-family home.

These are fixed-rate loans FHA insures against the risk of default. Loans must be made by an approved Title I lender. The 203(k) program is not as well known, but it provides a terrific opportunity for consumers looking to purchase and occupy a fixer-upper property. The program allows homeowners to receive a single, long-term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of the property. To obtain a loan under the 203(k) program, borrowers must use an FHA-approved lending institution.

Loans for amounts greater than $359,650 are considered jumbo mortgages and typically carry a slightly higher interest rate. The increase in conforming loan limits is based on October-to-October changes in average house prices, as published by the Federal Housing Finance Board, and on supervisory guidance issued by the Office of Federal Housing Enterprise Oversight, the regulator of Fannie and Freddie.

Fannie and Freddie are shareholder-owned corporations chartered by Congress to maintain a steady flow of mortgage funds for the nation’s housing market. They secure and resell a substantial portion of the outstanding home mortgage debt in the United States.

And, yes, the Office of Federal Housing Enterprise Oversight is the same watchdog that has been biting the legs of both companies the past two years. In 2003, a Freddie Mac accounting scandal stunned investors and resulted in a $5 billion earnings restatement, a $125 million fine and the replacement of top executives.

Last week, Fannie Mae announced that chief executive officer Franklin Raines, a graduate of Seattle’s Franklin High School, had taken early retirement and that chief financial officer Timothy Howard had resigned.

Those actions came less than a week after the Securities and Exchange Commission directed the company to make accounting corrections that could erase $9 billion of profit and culminated a four-month flurry of negative events that included a blistering 211-page report alleging that the company used improper accounting techniques, a Justice Department investigation, a civil investigation by the SEC, shareholder lawsuits and a congressional hearing.

What does all this mean for consumers? Rumors are rampant that Fannie and Freddie will drop their quasi-government affiliation in 2005, become completely private and actually make more mortgage money available to home buyers. Such a move would probably eliminate annual ceiling adjustments.

The sky would then be the limit, but who would be in charge of watching the books?

Tom Kelly’s new book “How a Second Home Can Be Your Best Investment” (McGraw-Hill) was written with John Tuccillo, former chief economist for the National Association of Realtors and is available in local bookstores.

Talk to us

More in Herald Business Journal

FILE - In this file photo dated Monday, March 11, 2019, rescuers work at the scene of an Ethiopian Airlines plane crash south of Addis Ababa, Ethiopia.  The number of deaths in major air crashes around the globe fell by more than half in 2019 according to a report released Wednesday Jan. 1, 2020, by the aviation consultancy To70, revealing the worst crash for the year was an Ethiopian Airlines Boeing 737 MAX on March 10 that lost 157 lives. (AP Photo/Mulugeta Ayene, FILE)
US board says Boeing Max likely hit a bird before 2019 crash

U.S. accident investigators disagree with Ethiopian authorities over the cause of a 2019 Boeing 737 Max crash.

Paddywack co-owner Shane Somerville with the 24-hour pet food pantry built by a local Girl Scout troop outside of her store on Tuesday, Dec. 20, 2022 in Mill Creek, Washington. (Olivia Vanni / The Herald)
An out-paw-ring of support: Mill Creek pantry feeds pets, day or night

With help from local Girl Scouts, the Mill Creek pet food store Paddywack is meeting the need for pet supplies in a pinch.

Kelly Cameron is the woodworker behind Clinton-based business Turnco Wood Goods. (David Welton)
Whidbey woodworkers turn local lumber into art

In the “Slab Room” at Madrona Supply Co., customers can find hunks of wood native to the south end of Whidbey Island.

Siblings Barbara Reed and Eric Minnig, who, co-own their parent’s old business Ken’s Camera along with their brother Bryan, stand outside the Evergreen Way location Thursday, Dec. 15, 2022, in Everett, Washington. After five decades in business, Ken’s will be closing its last two locations for good at the end of the year. (Ryan Berry / The Herald)
Print it or lose it: Ken’s Camera closes after decades caught on film

The local legend, processing film photos since 1971, will close its locations in Mount Vernon and Everett at the end of 2022.

Store owner Jay Behar, 50, left, and store manager Dan Boston, 60, right, work to help unload a truck of recliners at Behar's Furniture on Monday, Jan. 16, 2023. Behar's Furniture on Broadway in Everett is closing up shop after 60 years in business. The family-owned furniture store opened in 1963, when mid-century model styles were all the rage. Second-generation owner, Jay Behar says it's time to move on. (Annie Barker / The Herald)
Behar’s Furniture in Everett closing after 60 years

“It’s time to move on.” The small family-owned store opened in 1963 and grew to cover an entire city block.

Katy Woods, a Licensed Coach, Branch Manager, and experienced Banker at Coastal Community Bank.
Coastal Community Bank Offers Classes for Businesses

To support local business owners and their teams, Coastal offers complimentary Money… Continue reading

Innovative Salon Products online fulfillment employees, from left, Stephanie Wallem, Bethany Fulcher, Isela Ramirez and Gretchen House, work to get orders put together on Friday, Jan. 6, 2023, at the company’s facility in Monroe, Washington. The company began including pay, benefits and perks to its job listings over a year ago, well ahead of the new statewide mandate to include a pay range on job postings at companies with over 15 employees. (Ryan Berry / The Herald)
New state law requires employers to give pay range in job postings

Washington’s new pay transparency law aims to narrow wage gaps based on race or gender — though some companies may seek loopholes.

Nelson Petroleum on Thursday, Dec. 22, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
‘Egregious:’ Everett fuel company repeatedly broke water standards

Nelson Petroleum faces a lawsuit from an Everett Mall Way strip mall over discharges into a nearby wetland.

Mike Lane and son Dave Lane, right, in front of their family store Everett Vacuum with their popular sign and saying, “everything we sell sucks” on Thursday, April 7, 2022, in Everett, Washington. (Olivia Vanni / The Herald)
Suck it up — and shop it up — at Everett Vacuum

After 80 years on Broadway, the family-run store with the “Everything we sell sucks” sign moved to Hewitt Avenue.

Customers leave J. Matheson Gifts Wednesday, Feb. 16, 2022, in Everett, Washington. (Ryan Berry / The Herald)
Everett’s longtime J. Matheson gift store finds new life in Seattle

Miranda Matheson had her mother’s blessing when she opened a new J. Matheson Urban Gifts & Kitchens in Green Lake.

Carla Fisher and Lana Lasley take a photo together with Tommy Chong during 210 Cannabis Co’s grand opening Saturday, Dec. 10, 2022, in Arlington, Washington. Fisher and Lasley waited in line solely to get a photo with Chong. (Ryan Berry / The Herald)
Stillaguamish Tribe opens retail cannabis shop

More than 1,500 attended a grand opening on Dec. 10. The venture comes amid a boom in tribal cannabis stores.

Franco Montano works on putting together a wreath at his workshop on Monday, Dec. 5, 2022 in Monroe, Washington. (Olivia Vanni / The Herald)
Monroe man runs taco truck by day, makes 100 wreaths by night

Franco Montano, a former factory worker, started making the holiday wreaths in 2008. He has expanded into a thriving family business.