What the New Budget Proposal Means for Home Buyers

Written By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

The Obama Administration's new budget proposal came out last week. The one loud message I took away for would-be home buyers? Loans are cheaper today than they're likely to be in the future.

That means if you're thinking of buying a home this year or in the near future, now is the time to get going.

A lot of the proposed changes have to do with the future of Fannie Mae and Freddic Mac – the two mortgage finance giants that are backed by the government to keep a steady flow of funds available for the nation's home buyers. While their fate is still being worked out, there are some related changes that could go into effect this fall that would impact home buyers. They are:

1. The maximum size of mortgages backed by Fannie and Freddie will be smaller come October. Currently, the limit in high-cost areas like San Francisco is $729,750 for a single-family home. That amount will drop 14% to $635,500 when the current limits expire. What this means is that a substantial number of homes in San Francisco county, for example, (10%, according to the California Association of Realtors) will become ineligible for financing backed by the two finance companies.

2. Bigger down payments are on the horizon. We discussed some of the other measures on the table a few weeks back that are outside of any Fannie/Freddie discussions. But now, in the government's attempts to shrink Fannie and Freddie, some new proposals for the mortgages backed by these companies would mean that borrowers would face a requirement of 10% down with mortgage insurance – up from 5%. Not a lot of details are available about any of these proposals as of today, but we're expected to know more by April.

3. Fees, fees fees. The Federal Housing Administration in November could begin raising annual mortgage insurance premium fees by 0.25% for all borrowers, according to the proposals. Basically, that means an extra $250 per $100,000 of loan per year.

As I've noted before, this is the year of big changes in housing regulation – many of which are aimed at protecting consumers and the American public from another collapse in mortgage finance. However, the consequence is looking more and more like higher costs to borrowers. So if you're going to buy, you might want to speed up your decisions before a lot of these things start to take effect.