This past year, historically low mortgage rates and the shift to remote work spurred a wave of pandemic-era moves. Home inventory plunged to record lows as sales skyrocketed, and those still looking to buy were forced into bidding wars over the few homes available. However, for those who were able to find homes, or already are homeowners, there is a financial benefit.
Homeownership still is one of the best ways to build wealth. The key component is growing your home equity, which gradually shifts your biggest debt into an asset. One of the bright spots from the pandemic has been the explosion of home equity due to rising home costs. According to CoreLogic, homeowners gained $2.9 trillion in equity in April-June 2021 alone, an increase of 29.3% year over year, or $51,500 per homeowner!
In response to the rapid increase in home values, Fannie Mae and Freddie Mac (government-sponsored enterprises that purchase the majority of home loans) have increased the conforming loan limit (dollar cap on the size of a mortgage). Now, in most metro areas, the conventional conforming max loan amount is $647,200, and the Federal Housing Administration (FHA) max loan amount is $420,680. FHA loans are government-backed mortgages, designed for homeowners who may have lower than average credit scores, and which offer lower down payments.
As a result of these increases, you may have more flexibility, and could qualify for lower interest rates, to purchase or refinance in a higher price range than before. For example, you now could purchase a $680,000 home with as little as a 5% down payment. A month ago, this would have been considered a jumbo loan, which is held to stricter underwriting standards.
Do not expect these surging home prices to cool off anytime soon, though. Price growth eventually will slow, but the floor for home prices will be higher permanently, based on these loan amount increases.
You do not have to sell your home to tap into the profit you’ve accumulated. Borrowing against the value of your home with a cash-out refinance could help you eliminate your mortgage insurance payment, or get cash to pay off debt or complete home improvements.
Whether it’s buying a new home with record low rates, taking advantage of higher max loan limits or utilizing your home equity, the opportunity to create generational wealth through homeownership never has been better.
– Matt Quagliana, NMLS #1937747, is a licensed mortgage professional with Homeowners Financial Group in Canton. He can be reached at email@example.com or 770-885-6060.