Buyer Question Of The Day – “When Will I Feel The Effects Of The Magic Pill?”

One of the most frequently asked questions by buyers I’m working with has recently been, “How will the new loan limits affect the Loudoun County, Virginia housing market and me as a home buyer?”

Many buyers believe that the economic stimulus bill and its’ higher loan limits is the “magic pill” that will “save us all!” They also think (hope) that the new loan limits in Loudoun County will be very close to $729,750. In fact, many buyers are basing their decision to buy or sell primarily on the new loan limits and the supposed drop in “jumbo” rates.

Before ever answering the question, I did some homework and here’s what I discovered:

  1. Several reports, including a report from NAR, indicate that the new loan limits in the DC metro area, including Loudoun County, would be around $550,000, not near $729, 750.
  2. These new loans have a maximum 90% LTV so be prepared to put 10% down.
  3. Though the new limits are required by law to be set by March 14, this allowance will not go into effect until July 1, 2008 and loans must be funded and closed prior to December 31, 2008.
  4. The way these new “jumbo conforming” loans are structured and sold on the open/secondary market may actually cause the rates to increase on those loans, as well as current conforming loans under $417K. These new loans could potentially freeze up loan markets due to illiquidity. This would wreak additional havoc on the lending and housing markets.
  5. There is not a set date by which Fannie, Freddie, Ginnie, SIFMA, HUD and everyone else involved have to work out the liquidity issues. Who knows when that will happen or whether the affects will be positive or negative on the housing market.

Once buyers see this and do the homework for themselves, they start to understand that there is no “magic pill” that will instantly fix everything. They also start to realize that they should not base their decision to buy or sell primarily on the new loan limits and the hope of seeing “jumbo” rates decrease.

So when your buyers ask you the same question, remember…they may not like your bubble-bursting answer, but they will appreciate your honesty and expertise and will come to you to sell and/or buy when it’s right for them because of it.

Note: This is partially cross-posted from Loudoun Stats.

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