Will expiring loan limits impact the Upstate?

By Matt Vaughn, Sales Manager
Homeowners Mortgage

Effective October 1, 2011, there will be a decrease in the GSE (government-secured enterprise) and FHA loans. This will decrease a bank’s opportunity to originate loans higher than the approved loan limit. Companies like Fannie Mae or Freddie Mac offer securities and guarantees to lenders that help grant favorable rates and loan securitization, thereby decreasing the risk to lenders origninating the loans.

As we close in on the deadline when the loan limits will expire, it is important to evaluate how that may effect our local market in the Upstate. The expiration of the loan limits, which have been statutorily higher since 2008, will directly affect 204 counties nationwide. None of those counties are located in South Carolina.

The limits were set in place under the 2008 stimulus package when financing was scarce for homebuyer’s whose loan amounts exceeded the $417,000 limits. Sensing a need to provide homeownership to borrowers in higher-priced markets where buyers could not afford the larger down payments for more expensive homes, the government assigned a new loan size to each county to 25 percent greater than its median home prices, not to exceed $729,750.

The new rule lowers the temporary increase to 15 percent from 25 percent above the median home price, not to exceed $625,000, effective October 1, 2011.

Another change taking place this fall will affect FHA loans. These changes will take place in 620 counties throughout the nation affecting 59 percent of all homes. That means changes in South Carolina for the following counties: Beaufort, Berkeley, Charleston, Dorchester, Georgetown, Greenville, Horry, Jasper, Laurens, Pickens, and York. For the Greenville market, the 3 counties located in the Upstate will see their FHA loan limit drop to $271,050 from $295,000.

When dropping the price threshold and assuming the minimum 3.5 percent down payment investment, according to NAHB 2,538 families in Greenville County will be affected by the reduced FHA loan limit. That may seem like a lot of families, but in order to understand the impact of changes in FHA loans it is important to focus on the statistics of borrowers obtaining FHA financing. According to HUD, 107,125 people used FHA loans to purchase homes last year with an average loan amount of $179,000 with an average credit score of 703; 77 percent of these loans went to first time home buyers. For those working, building and buying in Greenville County this means that the changes should not have a large impact on home sales in our area.

The average sales price of a home in Greenville County is between $160,000 and $170,000. Most homes here will not be affected by any upcoming changes. For those selling and building at a higher price, the good news is that conventional mortgage insurance companies have started to become more competitive now that FHA monthly premiums have increased, and should attract a larger percentage of buyers with money to put down looking for better payments.