In November 2010, the Federal National Mortgage Association, or Fannie Mae, issued a memo to lenders advising the current conforming loan limits will expire on September 30th 2011.
On October 1st 2011, home buyers will borrow 15% less than the current loan limits permit in a new mortgage on 1 to 4 family properties.
The impact is beginning to be felt in Brownstone Brooklyn neighborhoods, where the majority of homes for sale are small multi family dwellings averaging 2 to 3 units.
Some lenders in New York City are getting a head start on implementing the changes from the new borrowing limits ahead of schedule.
And soon all mortgage lenders will stop taking loan applications from borrowers who are in contract to purchase a property in Brooklyn that doesn’t meet the new lending criteria.
Here is a chart comparing both old and new limits:
its effect on Brooklyn real estate
Since home values in Brooklyn are based on comparable property sales, any reduction in home mortgage lending limits will lower sales prices over time.
First time home buyers in contract after October 1st to purchase a new home in Brooklyn where they’re borrowing above the new limits will be forced to either increase their down payment or re-negotiate the purchase price.
Brokers and Agents will begin consulting their listed clients on the impact the new borrowing limits will have on their current asking price and suggest changing buyer incentives and/or list price.
Distress property sellers will find it easier to negotiate with home buyers, especially if they’re facing foreclosure with a lender for a mortgage balance above the new borrowing limits.
As lenders continue to work their way out of the current foreclosure crisis, the coming change in borrowing will offer home buyers more short sale bargains in the short-term.
The worst thing to do now is wait and see how things shake out. Proactive measures will safeguard against any delay in moving existing for sale inventory into the hands of new homeowners.
The only thing we see on the horizon after 18 months of the new limits is when Fannie Mae will issue a new Lender Letter announcing a new reduction in conforming loan limits.