On October 1, 2011, the government will begin to dial back on the size of mortgages it guarantees in high-cost areas like San Francisco, New York, and Washington D.C.
Once that happens the maximum loan amount that Fannie Mae and Freddie Mac will back is scheduled to drop from $729,750 to $625,500. That will likely make mortgages more expensive and/or harder to obtain for those buyers shopping in the $700K range, who prefer a down payment of 10 percent or less. In a city like San Francisco, where many single-family homes are priced well over $700K, means that buyers will need more cash to avoid the extra costs of jumbo loans over $625K.
The curbs on government-backed loans could reduce the available pool of buyers. For people planning on exiting the market altogether—such as retirees—they may have to sell at a lower price, be patient to get the price they want, or consider owner financing.
When loans are rolled back, buyers will need to have a larger cash down payment unless they’re willing to buy a less expensive home. We will have to wait and see whether sellers will reduce the price of their homes to make them more attractive.
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