The Disappearing “Jumbo” Creates a Window of Opportunity for Some Retreat Buyers
For many years the “Jumbo” mortgage  has been the means by which middle class buyers have purchased A.) Large homes, B.) Homes on large acreages, or C.) Homes in desirable suburbs. With the recent credit market crisis, the availability of Jumbo loans has declined precipitously. This has had a number of immediate effects. First, it has been an impetus for owners of houses that had been listed between $417,000 and $450,000 to lower their asking prices to $416,000 or less. Secondly, with a few exceptions, it has effectively put a damper on the market for any property over $450,000 in many areas. Lastly, it has put cash buyers of properties over $450,000 in a very strong bargaining position.
Say, for example, there is a survivalist (or a group of survivalists) moving from a suburban coastal region with high real estate prices to an inland rural region where the only properties over $400,000 are on very large acreage. And, for the sake of argument lets say there are a few people (or survival groups that are pooling their resources and plan to split up a large ranch) that have $417,000+ in cash scattered around in several banks. (Again, these are smart individuals, so they don’t have more than $100,000 (or $200,000 for married couple) in any singe FDIC insured institution, right?). With that cash in hand, they now they have considerable bargaining power to talk down the asking price on any property that is listed over $417,000. I expect this situation to persist for several months–at least until the credit market regains some semblance of order and the mortgage writers start to issue Jumbo loans again. But for now, this represents a great window of opportunity. In today’s market, the seller of property listed at $650,000 might seriously consider a “low ball” offer of $525,000. (A year ago, he probably would have dismissed such an offer, out of hand.) Think about it. – JWR.
I recently discussed this development in an exchange of e-mail with a SurvivalBlog reader who is a mortgage specialist that lives in the San Francisco Bay area. The following were some of his comments:
“[The Bay Area is an unusual market.] We do have [recent] immigrants and one thing you don’t hear in the news is that in the Asian and Indian and to a lesser extent, the Hispanic cultures, three generations
under one roof is not uncommon if you have 4-6 working adults and grandma watches the babies all day, its not a problem to make that monthly nut, even if 1 gets laid off. Also there are lots of high tech
money out here and financial industry money who can afford a multimillion dollar semi custom house here in the Bay Area. There is still plenty of money out there to be lent by banks at good rates (long term rates are back down to low 6%) but the banks are not going out with the 100% stuff anymore, although those 100% loans are available they are tough to find and [have] fairly high rates. Banks want people to have some skin in the game.
One thing to remember about the Fannie Mae limits is $417,000 is for 1 unit, the limits on a duplex is $533,850, 3-plex is $645,300 and 4-plex is $801,950, for a government saleable loan (limits are much higher in Hawaii and Alaska. Although I don’t know how many 4-plexes there are on a multi acre parcel but a duplex might be reasonable (Two+ extended families or very close and trusting friends, make sure any of your agreements are in writing!, or form a partnership or LLC and make sure it is spelled out exactly who is responsible for what).
Also, on anything over 20 acres and your bank may have issues not calling it a ‘farm’ and wanting to charge commercial rates and even making it FNMA Saleable. I recommend talking to a local bank or Agricultural credit union if somebody needs to finance a big piece of land. Talk to a direct lending bank or Credit Union, not a “non bank” finance company (Countrywide, Charter Funding, American Home Mortgage etc.) they have money to lend. The non-Banks have to get money from investor-lenders and then repackage the mortgages as bonds to investors, well the meltdown occurred when nobody would lend and nobody would buy so they were sc**wed on both ends. A portfolio lender bank does not have such problems.
Seller [note] carry backs may be an option. If Farmer Jones is retiring or sectioning off some of his land, he may be very open to a bit of cash now, and holding a note for 5 or 10 or 15 years at a decent rate for some monthly income and he can foreclose if you default but the nice part is, he’ll probably be more friendly and work with you in a default situation then the bank who has stockholders to please and will call the sheriff for eviction after 60 days or whatever your local rules are if you run into a problem.
Finally, yes in this market the buyer is king and a well qualified buyer with no contingencies is a seller’s dream. Especially if seller is in a panic or already bank-owned [Read: in foreclosure]. Two years ago, sellers held all the cards.”