The good news is that you will be able to borrow more money at the best possible rate this year. The bad news is that interest rates are not expected to decline and, while home values might not continue to race upward at a sizzling pace, don’t plan on them moving backward.
Some home loan borrowers had been eyeing 2006 so they could take advantage of the new conventional loan ceilings adopted by the two key players in the secondary mortgage market.
Most of the time, especially with home prices rising in many areas, the equity you accrue in appreciation far outdistances the difference you receive if mortgage interest rates go down. The truth is that home loan rates are lower now than a year ago, regardless of how many times you’ve been told “rates are on the rise.”
On Jan. 1, Freddie Mac and Fannie Mae, the two biggest players in the secondary mortgage market, expanded their loan limit for single-family mortgages to $417,000 from $359,650, including reverse mortgages made under the Fannie Mae Home Keeper program. The move enables potential homebuyers and refinancers to borrow more money at lower interest rates. Amounts greater than $417,000 are classified as “jumbo” loans that typically carry a slightly higher interest rate.
Conforming loan limits usually adjust annually and are based on the October-to-October changes in the average home price as published by the Federal Housing Finance Board. The board’s figures come from its monthly survey of lenders. Both new and existing homes are included in the survey.
The new loan limits mean more people will be eligible for conforming loans. As a result of the new limits, Fannie Mae estimates that as many as an additional 466,326 homeowners would be eligible for conforming loans. Fannie Mae’s average loan amount was about $172,000 in 2005.
Also effective Jan 1:
* $533,850 for mortgages on two-family properties or duplexes, up from $460,400.
* $645,300 for mortgages on three-family properties or triplexes, up from $556,500.
* $801,950 for mortgages on four-family properties or fourplexes, up from $691,600.
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 2006. FHA, part of the U.S. Department of Housing and Urban Development, lifted its ceilings to $362,790 from $312,896 in about 30 urban areas.
These increases in the loan limits for home equity conversion and Home Keeper mortgages will enable seniors to access greater amounts of equity in their homes, providing a powerful tool for addressing their financial needs through retirement, said Peter Bell, president of the National Reverse Mortgage Lenders Association.
Approximately 80 percent of the 3,226 counties (2,575) in the U.S. are at the lowest FHA loan limit ($172,632). Only 104 counties, or 3.2 percent of the total, are at the current maximum loan limit ($312,896). The rest of the counties are somewhere in between.
There is no guarantee that counties at the current ceiling, or in between the floor and ceiling, will rise immediately.
The lending limits are available online at https://entp.hud.gov/idapp/ html/hicostlook.cfm.
Interest rates are expected to be moderately higher this year compared with 2005. Doug Duncan, chief economist for the Mortgage Bankers Association, estimated that mortgage rates on 30-year fixed-rate loans will rise to about 6.6 percent later this year after hovering near 6.25 at the end of 2005.
David Lereah, the National Association of Realtors’ chief economist, said strong demand should keep home sales high even though the uptick in mortgage rates will cause some slowing.
According to the association, the national median existing home price, up an estimated 12.7 percent to $208,800 for 2005, is expected to rise another 6.1 percent to $221,400 this year.
The median new-home price, up about 5.5 percent to $233,100 in 2005, is expected to jump 7.3 percent this year to $250,100.
Tom Kelly’s new book “Cashing In on a Second Home in Mexico: How to Buy, Sell and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on www.tomkelly.com
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