What Investors Need to Know About New FHFA Conforming Loan Limits?

What Investors Need to Know About New FHFA Conforming Loan Limits? – FinanceTillEnd

The Federal Housing Finance Agency (FHFA) announced a new loan limit for the year 2022. This change will make it easier for more people to get money from the government to buy a home. It will affect homeowners, real estate investors, and stock market investors.

Here is what will happen to these groups.

Higher Limits Help Some Mortgage Originators More Than Others

The increases in loan limits help lenders like Rocket Companies and UWM Corp. These lenders specialize in loans that are backed by the government. If the conforming loan limit was not raised, then there would be no loans to give them that fit into their business model.

Lenders that originate loans that are not guaranteed by the government, like mortgage REITs like Redwood Trust or Annaly Capital Management, might see fewer potential borrowers. But people will still buy homes because they know home prices will rise.

Home Price Appreciation Has Been On A Tear This Year

The prices of homes have been going up by 18.5% each year. It’s like the stock market, except it only counts the houses that were sold in a certain time period. The FHFA House Price Index is similar to the Dow Jones Industrial Average Index, except it only looks at houses that were sold during that time period.

The FHFA House Price Index is a way to see what the conforming loan limits are. These limits apply to loans that are guaranteed by government agencies and they have lower interest rates because the government backs it.

Starting Jan. 1, the government will guarantee mortgages up to $647,200 in most areas. Homes in high-cost areas can be worth up to $970,800. You can get loans for more than this amount if you have a home that has four units.

Higher Limits Should Support Further Home Price Appreciation

The increase in lending limits should help make home prices go up. This will be good for single-family rental companies like American Homes 4 Rent. This is because their homes are cheaper than apartments. Apartment REITs, especially in high-cost urban areas like Equity Residential, should see rental growth.

It is good if homebuyers can get lower mortgage rates. Some people could not buy homes because of the high prices. But now these people might be able to buy if they get a cheaper home.

Also Read

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