Prospective home buyers shopping for houses worth around $500,000 are taking advantage of rising interest rates caused by the ongoing subprime mortgage meltdown. Buyers and sellers alike are becoming increasingly mindful of one magic number: $417,000. Fannie Mae and Freddie Mac will only guarantee mortgages worth less, forcing some sellers to lower their asking price to accommodate buyers looking to avoid so-called jumbo mortgages. From the Wall Street Journal:
Alan Vallillo, a property manager, dropped the price of his three-bedroom, 2 1/2-bath condo in Trumbull, Conn., by $20,000 to $549,000 last weekend. The lower price will make it easier for a buyer with a down payment of roughly 25 percent to qualify for a conforming loan, says Mr. Vallillo’s broker, David D’Ausilio of Re/Max Heritage in Westport, Conn.
In addition, Mr. Vallillo, who plans to move into a new home in late September, is offering to buy down the interest rate on the buyer’s mortgage loan by two percentage points in the first year and one percentage point in year two. He says he hopes the interest rate buy-down will “spur (someone) to drop the price on their home so they can buy mine.”
Jason Godfroy, a teacher, recently set a $465,000 asking price for his four-bedroom colonial in Adamstown, Md., on the advice of his agent, John MacArthur. “To get people in, (they) had to be able to get a conforming loan” and not a jumbo mortgage, Mr. Godfroy says. With 10 percent down, “that puts you at $418,500.”
Some prospective buyers are turning to more creative tactics:
Jane Powers, a broker with Ewing & Clark Inc. in Seattle, says that one of her clients recently offered $1.7 million for a waterfront home listed at $1.995 million – and also asked the seller to provide financing. The buyer, who is self-employed, said that he was likely to need a loan that didn’t require him to document his income, which is getting tougher to find. “He was using it as leverage to try and get better terms,” Ms. Powers says. “It didn’t work.”
Though rates are beginning to creep northward, borrowers with good credit can still secure jumbo mortgages for 7 percent by shopping around.
Borrowers with good credit are paying higher rates [WSJ]
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