Increases for Freddie and Frannie

Just when you thought that prices of homes couldn't go higher: The Office of Federal Housing Enterprise Oversight (OFHEO) announced on Tuesday that new limits will apply for loans that can be purchased by Freddie Mac and Fannie Mae. As of January 1, 2006, Freddie Mac and Fannie Mae will be able to purchase single family home mortgages up to $417,000. This is an increase of 16+ percent from the $357,650 cap for 2005.

While there's no news yet from analysts whether this is a "good" thing or a "bad" thing, you can bet that there will be more conflicting news on the housing bubble (or bust) in the news in the coming weeks. As soon as the consumer confidence ratings are out for December (and the Christmas buying season as a whole), there will be people weighing in on all sides.

The one sure thing is that US consumer debt is at an all-time high. We seem to be the "little economic engine that could", but even the best economies falter. The best approach is to think about what you can afford and what you feel comfortable with, no matter what your lender tells you that you can afford. Keep in mind that disaster can (and does) happen to anyone.

In my own case, we had a surprise a couple of years back that could have cost us our home. My wife suddenly became ill, and she didn't have disability coverage. At that time, she was "self-employed" like me, and neither of us had considered that we should budget for disability insurance in our business plans. (We've since corrected that.) In any case, her consulting business collapsed because she wasn't selling. She ended up off work for over a year.

What saved us was that we had previously agreed that we would never buy a home that couldn't be carried by just ONE of us. While my wife was off work, my income carried the day. It wasn't great -- we had to do a lot of scaling back -- but we managed without having to get credit counselling or go into bankruptcy.

Now, not everyone will be able to do this and still buy a house -- but you can buy what makes sense to you, and make sure you have a financial plan that will help you carry the day, just in case.


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