What do you mean we have hit the trifecta?
The Federal Housing Finance Agency (FHFA) announced a record house price appreciation rate of 18.5%from the third quarter of 2020 to the third quarter of 2021. In fact, every state and every metropolitan area showed gains in the previous 12 months.
According to the report, the following five states had the highest annual appreciation:
· Idaho 35.8%
· Utah 30.3%
· Arizona 27.7%
· Montana 26.0%
· Florida 24.8%
Given this data, the maximum claim amount for FHA-insured HECMs will be $970,800 for all HECMs with a case number assigned on or after January 1, 2022, 150% greater than the national conforming limit of $647,200 and 18% higher than 2021’s max claim amount of $822,375.
With this increase in the maximum claim amount, we are also seeing an overall reduction on principal limit factors, AKA loan to value. The loan to value that a borrower will see is actually going down slightly due to rising interest rates. Now, this is a bit tricky because the principal limits factors are based on 3 main factors-
1. The age of the youngest borrower
2. Interest rates
3. Maximum claim amounts along with the home value
We are seeing current rates at around 2.5-3.0% on most current HECM loans. These rates are tied to short term treasury rates, meaning, rates could potentially rise by around 1% over time, placing the expected rates closer to 3.5-4%. This means the principal limit factors are slightly lower than we saw last month. Overall, the reduction is only around 1.5% but it is certainly worth addressing as this trend is expected to continue over the next few months.
What Does all this mean?
If you are looking to stay in your home and age in place, now is truly the best time to look into your options. We have seen tremendous appreciation, continue to see historically low rates, and now with the increase of the HECM lending limit…a Trifecta has been created for making now the very best time to look into your options!
With all this being said, along with the data that Nicole has shared on the market, there is a true strain on the inventory of homes for sale across most markets. As a matter of fact, my team recently assisted 3 different clients who wanted to sell their home and move into a new one, however, after a long search, they decided that they were better off staying put. In other cases, clients realized they had to spend more money to buy a smaller house, so instead they used a HECM loan to improve their cash flow and use some of their equity to remodel their home.
As always, if my team or I can assist you with a complimentary consultation and help better understand how you can utilize a portion of your home equity strategically in retirement, we would love to speak with you!