Can I afford to wait?

Prepared by: Scott D. Kliewer, Broker/Owner, Windermere Silicon Valley Properties, (408) 239-5800
9/17/08

Here are two scenarios for your review:

Scenario #1:

Assuming a buyer purchases in 2008 with conforming jumbo loan amount not to exceed $729,750:
$900,000 Price
20% Down - $180,000
$720,000 Loan Amount
5.875% @ 1 discount point
Payment: $4,259.07

Assuming a buyer purchases after 1/1/09 with conforming jumbo loan amount not to exceed $625,500:
$900,000 Price
20% Down - $180,000
$720,000 Loan Amount
6.625% @ 1 discount point
Payment: $4,610.24

This represents a significant difference that amounts to an additional $351/month, $4,212/year, or $126,360 over 30 years. This assumes that rates remain the same; however this cost differential shows why there should be a sense of urgency because there is a current bias towards believing the rates will increase over the short term, not decrease.

Scenario #2:

A home buyer looking to purchase a home in the $810,000 range:

There are major differences from the conforming jumbo to the non-conforming regular jumbo loan programs that include more stringent guidelines and lower loan to value limits.

For example:
Conforming jumbo loans – currently up to $729,750 and reducing to $625,500 on 1/1/09 carry maximum loan to value of 90%.

Non-conforming regular jumbo loans – anything over $625,500 as of 1/1/09 carry a maximum loan to value of 80%.

This means that through 2008 a qualified buyer could buy a home for $810,000 and only be required to put 10% down. After 1/1/09, this buyer would face the new conforming jumbo loan amount of $625,500 and that would require a down payment of $184,500 (nearly 23% down) to obtain the same loan program. The other option would be a non-conforming regular jumbo program at a higher rate and requiring 20% down payment for a cost of money differential similar to that shown in scenario #1.


Note: The affordability differential because of the down payment requirements changing is quite large. A qualified buyer that has only 10% down can currently purchase in the $810,000 range. (90% of $810,000 is $729,000.) As of 1/1/09 this same buyer could purchase only up to the $695,000 range to obtain similar financing terms. (90% of $695,000 is $625,500.)