Congress voted to extend the temporarily higher limit on so-called jumbo mortgages, allowing Fannie Mae and Freddie Mac to continue to purchase loans up to $729,750 through 2011. Without the extension, the limit would have reverted to $625,500.
Keeping the higher limit means those government-sponsored enterprises can continue to buy more loans from lenders. This gives the lenders the liquidity to provide more loans to homebuyers. Also, lenders attach higher interest rates and bigger down payments to loans above the limit, known as jumbo loans, to offset the risk of default on pricey properties. The extension allows more buyers to avoid those hurdles.
Sandy Raciti of Prudential Douglas Elliman Real Estate welcomes the news. “If you’re buying in Manhasset, Great Neck, in all these areas the home prices are still very high, financing is everything,” she says. “That’s really the backbone of the real estate market. If people can’t get financing, they can’t buy -- short of having all cash, which most people don’t have.”
The extension allows buyers who have a high income but may lack the cash for a sizable down payment to take advantage of lower home prices and mortgage interest rates, she says, while the qualifications required for jumbo loans help keep the risky riffraff out. “I think most people that even apply for the jumbo loans pretty well know they can afford them. They usually have good credit, great jobs.”
The announcement offers a psychological boost that can only help the market along, says John Bischoff of Town & Country Real Estate in Southold. “I think it’s great news. I think the market can use all the good news we can get.”