I posted earlier this week on the new, higher conforming loan limits for Freddie Mac & Fannie Mae as well as FHA loan limits for the Big Bear, San Bernardino area.
After a few more days of consideration, I think it is safe to say that these new limits will have no immediate benefit to the real estate sales in our area.
I come to this conclusion based on couple key factors:
Most of the homes in Big Bear are second homes.
Given that approximately 70% of the homes in Big Bear are second/vacations homes for people who live in San Diego, Orange County, Los Angeles, and Las Vegas (plus a few others), the recent FHA loan limit increase to $500,000 won’t help. FHA loans are for a primary home purchase, thus the majority of buyers in the Big Bear area will not be helped.
Like FHA loans, the new conforming loan limits of $500,000 (the old limit was $417,000) also will apply to Big Bear. Unfortunately, it appears that a second home purchaser may have to put 40% down in order to use this product. That, coupled with the fact that the interest rate may be 1% higher, makes these loans a bit ineffective.
So, on a $600,000 purchase price, a second home buyer cannot come in with 20% down ($120,000) because that would put that loan at $480,000, which would not qualify. They would then have to come in with another 20% to make it the 40% ($340,000) down.
Sounds like the better way to go is getting the loan amount to $417,000 (a total of $183,000 / 30% down ), or putting 25% / $150,000 and get a second trust deed for the remainder amount above $417,000 (which would be $33,000). This way you can stay with the “old” conforming loan limit and avoid having to put more down and pay a higher interest rate.
Declining real estate market conditions.
With the lack of sales activity in the County, Fannie Mae has declared the San Bernardino area to be a “declining real estate market.” What does that mean? Basically, the maximum amount for a conforming loan one can get will go down 5%, from 95% to 90% of the home’s value.
While that does not sound like a bad idea to me (isn’t that how we got here in the first place?), it certainly won’t help the sales.
The median sales price in Big Bear is well below the new loan limits.
$306,500 is the median sales price for homes in the Big Bear area over the past year.
There were 713 homes sales in the past 12 months, of which 495 (or 70%) were homes sold under the $417,000 price mark. With the majority of home sales under these new loan limits, I can see no new benefits to the property buyers in this price range.
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Note: Not all lenders are the same, some of their guidelines and standards may differ from the items mentioned above. Make sure to check with your mortgage consultant about your loan options.