The San Jose Mercury News today talks about pricing a home and the benefits of the $417,000 price point. For those who do not recognize the number, $417,000 is the limit of qualifying for a conforming loan that Freddie Mac or Fannie Mae will purchase. This limit is huge as once it is breached you are in the territory of Jumbo Loans that carry a higher burden of approval and higher interest rates.

Say you need to unload a home quickly that is in the mid $400,000  range quickly, what pricing strategy should you go after? If you really need to move it, pricing it at the $417,000 price point will open all of the buyers who can qualify for the conventional loan into the mix. Now the other alternative is to price it at 10 percent over the Conventional loan limit and market it as that, so buyers who have 10 percent saved will be able to qualify.

If I was selling a 500,000 plus dollar home and needed it to move I would reduce to $500,400 as this is the $417,000 limit plus 20 percent down payment, again bringing in the buyers that will qualify for a conventional loan.

Marketing the home is all about widening the pool of potential buyers and sacrificing a few dollars or aiming for a price point. With tightening credit standards and available credit the amount of folks that will qualify for a conventional loan is much greater than those who can be approved for a Jumbo loan. And I think few will argue that more potential buyers in a slow market is bad advice to a seller.

This will also get the buyer thinking in terms of long term savings which is a very smart strategy. For me, it is all about getting the buyer to think outside of the normal pitch and have them realize that even as a sellers agent you have their best interests at heart.

Loans of $417,000 and less are purchased by the Federal Home Loan Mortgage Corp. or Federal National Mortgage Association, two agencies, that, with the government’s help, provide a lower interest rate to home buyers. Loans of more than the conforming loan limit of $417,000 are called jumbo loans and usually have higher interest to absorb lenders’ perceived loan risk.
“Maximum conforming limit loans are where the money is,” said Jay Damato, a mortgage broker and owner of Elite Financial in Walnut Creek. “That’s where you can still do a zero-down — 80 percent first, 20 percent second.”
Damato said he wasn’t surprised agents are telling sellers to hit around the loan limit.
“Jumbo loans are more expensive and harder to qualify for,” he said.
In August, a cash crisis hit the lending industry, creating a huge chasm between those who could qualify for a conforming loan and those who could qualify for a jumbo loan. Because of the higher risk, some lenders increased jumbo interest rates more than 2 percent. San Jose Mercury News

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