Feds to back bigger mortgages in Sonoma, Napa counties

Rising home prices in Sonoma and Napa counties are triggering a change in federal housing rules that will help home buyers in both counties obtain larger mortgages and make smaller down payments.

The Federal Housing Finance Agency is raising conforming loan limits in both counties on Jan. 1, which will allow entities like Fannie Mae and Freddie Mac to buy or guarantee bigger mortgages in both counties.

Loan officers and real estate officials characterized the increase as a modest but positive step that will reduce the cost of buying homes in Sonoma and Napa counties.

“It certainly is going to help,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. “It’s not a huge increase, but every little bit helps.”

Higher-income buyers will benefit the most from the changes. Appleton-Young said the increased loan limits could prove a factor in roughly 6 percent of local housing sales, or nearly 300 of the more than 4,700 single-family homes expected to be sold in Sonoma County this year.

In Sonoma County, the conforming loan limit will increase by 4.5 percent to $554,300. In Napa, the limit will climb 1.7 percent to $625,500, the maximum allowed and the same amount as in pricey markets such as San Francisco.

Along with the increase in loan amounts, borrowers next year will be able to qualify with only a 5 percent down payment, significantly less than the previous minimum of 10 percent.

Increasing the size of loans that can be backed by Fannie Mae and Freddie Mac will make them more affordable. Loans that exceed the conforming loan limit typically come with higher interest rates and stricter underwriting standards because they are not backed by the federal government.

Higher costs, in turn, make homes less affordable and shrink the pool of potential buyers.

In Sonoma County, buyers next year who obtain the maximum loan amount with 5 percent down would need an annual income of nearly $120,000 a year in order to qualify, said Kris Anderson, a senior loan consultant for Allstate Mortgage in Santa Rosa. Their monthly payment, including taxes and insurance, would total nearly $3,800.

Under the new rules, such buyers would need about $30,000 less for their down payments, Anderson said. That means they could more quickly become home buyers.

“I don’t know if it means a lot more sales,” she said, “but it certainly will be something that encourages people to start looking now rather than later.”

The Housing and Economic Recovery Act of 2008 set rules for federal loan limits, including a base amount of $417,000. The law allows larger limits for “high-cost counties,” often those in states like California and New York.

“They recognized the coastlines are more expensive,” said Rita Alonso, president of the Santa Rosa chapter of the North Bay Association of Realtors and an agent with Keller Williams.

For Sonoma County, the loan limit initially was set at $662,500. But in late 2011 the limit dropped to $520,950, where it will remain until Jan. 1.

Sonoma and Napa are two of just four California counties that will receive higher limits for Fannie Mae and Freddie Mac loans next year. Part of the reason is that many higher-priced areas elsewhere in California already have reached the maximum of $625,500.

In a similar move, the Federal Housing Administration last week announced that Sonoma and Napa are among seven communities in the state that next year will also receive higher loan limits. The FHA will increase the size of loans it backs in Sonoma and Napa counties, matching the changes by Fannie and Freddie.

The other five affected areas are San Diego, Monterey, San Bernardino, Riverside and Stockton-Lodi.

Regulators set the limits based upon increases in a federal “house price index,” which like similar indexes measures changes in sales prices of the same homes over time, said Oscar Wei, a senior economist with the California Association of Realtors. Sonoma County received an increase in its loan limits, he said, because recent home appreciation here has “moved at a faster rate.”

Local loan officers said the county has plenty of high-income residents who can benefit from the increase.

Many people wrongly assume that buyers of high-end properties have big bank accounts, said Otto Kobler, branch manager in Santa Rosa for Summit Funding. But many such Californians still find it difficult to sock away enough for a big down payment.

“I just rarely see people who have saved up a bunch of money,” Kobler said.

Scott Sheldon, a loan officer with W.J. Bradley Mortgage in Santa Rosa, said among his clients who may benefit are younger, highly educated workers in the region’s wine industry. Such borrowers have stable jobs and good credit, said Sheldon, but “they just haven’t saved up for a huge down payment to buy a home.”

For Sonoma County, the raised limit wasn’t a huge dollar increase and likely will affect a limited number of buyers, said Brian Connell, managing broker for the Santa Rosa Mission office of Coldwell Banker.

“But for those buyers,” Connell said, “it’s going to really help them get into the market.”

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit.

Editor’s note: The rate of increase next year for conforming limits on federally backed loans in Sonoma County is 4.5 percent to $554,300. An earlier version of this story included an incorrect rate and incorrect loan limit.