March 7, 2021

Bucks Blog: Bearing the Brunt of the New Mortgage Cap

A home for sale in Carmel, in Monterey County, Calif., in May. Monterey County is expected to be affected by a change in mortgage rules starting Oct. 1.Peter DaSilva for The New York TimesA home for sale in Carmel, in Monterey County, Calif., in May. Monterey County is expected to be affected by a change in mortgage rules starting Oct. 1.

The pending end of federal guarantees for pricey mortgages will probably have the greatest effect on borrowers in counties in just a few states, an analysis by the real estate site Zillow finds.

The change on Oct. 1 will affect fewer than 2 percent of the total mortgage applications in the United States, Zillow estimated. But, while applications in just 250 of the roughly 3,000 counties nationwide will be affected, certain counties — in California, Virginia and Washington State, for instance — will bear the brunt. “While the impact of the changing loan limits is relatively small in aggregate,” wrote Svenja Gudell, Zillow’s senior economist, “there are some larger local impacts where individual counties could be harder hit.”

In San Juan County in Washington State, for instance, an estimated 20 percent of submitted loan requests will no longer be eligible for lower interest rates. Instead, they would be categorized as “jumbo” loans, and subject to higher rates. The percentage is about 17 percent in Monterey County, Calif., followed by roughly 14 percent in San Mateo and San Francisco Counties, and about 12 percent in Arlington County, Va., Zillow found. To arrive at its estimates, Zillow analyzed more than 830,000 applications to its mortgage marketplace during the 12 months ending in August.

The limit for a government-insured loan is $417,000 in most parts of the country. Loans above that limit have generally been considered “nonconforming” or “jumbo” loans, and carried a higher interest rate to reflect their higher risk. But for the last three years, due to housing market turmoil, the government raised the conforming loan limit to as much as $729,750 in areas with very high home prices. The move created a new, middle tier of loans (Zillow calls them “expanded conforming loans”) that were eligible for government backing but, in practice, still subject to slightly higher interest rates.

Now, a change in the government’s formula that takes effect Oct. 1 will lower the maximum loan to $625,500. (A front-page story discussed the issue in May, and this Bucks post explained how the change might affect a hypothetical borrower.) That means borrowers will either have to make a larger down payment, to bring the loan below the new limit, or pay a higher interest rate, Zillow said.

Zillow also estimated how many properties in those 250 counties that could currently be financed with an “expanded conforming” loan won’t be able to be financed that way as of Oct. 1. (The analysis is based on Zillow’s estimate of the home’s current value and assumes a 20 percent down payment. The study included the roughly 100 million homes in Zillow’s database.)

About 2.5 percent of homes in those counties are affected, Zillow says, which represents less than 1 percent of homes nationally. The results are similar to the mortgage application results, although the analysis also shows significant effects in some counties in Florida, New York and Massachusetts. There are a few differences, though. In Summit County, Utah, for instance, Zillow found that just 1.3 percent of mortgage requests would be affected by the change, but that nearly 10 percent of the houses in the county, “if sold, would now have to be financed by a jumbo loan. ”

Are you trying to finance the purchase of a house? Has the change in conforming loan limits affected your purchase?

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