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Category: Interest Rates (Page 4 of 26)

Conventional and FHA Loan Limits for 2024

Fannie Mae-Freddie Mac picture

Every year, the both the Federal Housing Administration (FHA) and the Federal Housing Finance Agency (FHFA) adjusts the conforming mortgage limits based on home price growth.

FHFA logo

The agencies do this to keep pace with the market and to make sure buyers have access to the right levels of financing.

Conventional Limits

Starting January 1, 2024, new conventional loan limits will rise to $766,550 in most of the U.S. — with larger limits for high-cost areas.  These loan limits vary by county.

The agency announced a 5.56% increase to the borrowing ceiling of conventional mortgages. For one-unit properties, this amounts to a $40,350 jump from $726,200 in 2023 to $766,550 in 2024.

Loan Limits graphic

FHA Loan Limits

FHA loan limits are based on the Federal Housing Finance Agency’s conforming loan limits. Each year, FHA limits are set at 65% of the new conforming loan limits.

There’s not just one FHA loan limit. Rather, borrowers can access a wide range of loan sizes depending on the type of property they’re buying and where it’s located.

Loan Limits graphic

The Federal Housing Administration backs mortgages on 2-, 3-, and 4-unit properties. These types of homes have higher loan limits than single-family residences.

Although FHA allows multifamily home loans, the property must still be considered a “primary residence.” That means the home buyer needs to live in one of the units full time.

Contact Me

Do reach out to me to find out what the maximum loan limit is for a particular county, as it would be my pleasure to help!  And remember, if you decide to utilize a multi-unit property as a primary residence, low down-payment options are available!

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The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

The Lending Coach 2024 Mortgage and Real Estate Forecast

2024 Forecast graphic

My 2024 real estate and mortgage rate forecast centers specifically around supply and demand…of both real estate and mortgage backed securities. As we know, all prices are determined by supply and demand. 

Right now, housing supply is relatively low, and demand is growing – and that means home price appreciation.

On the mortgage side, will interest rates finally come back?

Hourglass and house

Well, inflation is the biggest driver of interest rates…and that seems to be finally coming down to manageable levels – and this should lead to lower rates moving forward!

Let’s take a look at the factors that will impact mortgage rates and real estate in 2024…

Inflation

The single biggest driver of bond yields AND mortgage rates is inflation.

roll of american dollar banknotes tightened with band

Mortgage rates are essentially driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of that buying power.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline. 

History proves this during rate hike cycles for the past 50 years, per the slide below.  Unfortunately, this isn’t an overnight fix.

Rates and Recession graphic
Jerome Powell

Essentially, the Federal Reserve bungled their management of inflation in 2020 and 2021 and were forced to make severe changes to offset the damage.  This brings market instability and increased mortgage rates.

Fortunately, inflation does seem to be coming down (and that’s primarily why rates are better today than they were in October of 2023.  And the news on the horizon looks promising.

It looks like core inflation might be in the 2% range by the middle of this year, which bodes very well for lower mortgage rates:

Inflation-Fed Cut graphic

The trend in inflation is working in the borrower’s favor, and it means the Fed’s going to have to look at cutting the Federal Funds rate in 2024.

You can find out more on inflation, The Federal Reserve, and mortgage rates here…

The Fed and Rate Cuts

The Fed said they’re going to start cutting before we get to 2% core inflation. I think there’s a good probability March 20th, we’ll get the first Fed rate cut, and certainly by May 1st.

Now, what does the market say on this?

Well, there’s odds-makers. Just like if you were to go take a look on DraftKings and see what the odds are on a football game, well, there’s odds-makers on what the Fed will do as well.

Fed Cut Graphic

As you can see above, the chances are pretty much assured that by May we’ll get that first rate cut.

Dollar signs graphic

In fact, there’s pretty good odds that we’ll have multiple rate cuts by May and June.

Per the chart above, there’s a 56% chance of at least 50 basis points cumulatively and by June there’s a 53% chance, better than 50-50, that you will have three 25 basis point cuts by June 12th.

Now something that’s also very important to watch is the Fed’s balance sheet. The supply of mortgage-backed securities has been hurting rates through most of 2023 because the Fed reducing its balance sheet.

They had their balance sheet go up during the great financial crisis and it got up much higher during the COVID crisis to a point of $8.5 trillion. That was just too much buying on behalf of the Fed.

Balance Sheet graphic

The chart above shows their outright holdings of treasuries and mortgage-backed securities and they’ve offloaded $1.4 trillion over the last 18 months or so. That’s been a big driver in mortgage rates…and rates started to rise because the market had to absorb all of these securities.

But recently interest rates have improved and that is because the expectation for lower rates is causing banks to be aggressively buying treasuries and locking the higher rates in anticipation that rates go lower.

So, let’s take a look at what the Fed might be comfortable with on their balance sheet.  That will be critical, because the Fed is going to slow down or eventually stop that runoff and stop that added supply of treasuries and mortgage-backed securities on the market.                

Balance sheet breakdown

As we go through each month, you can see that as we get into March, right before the March 20th meeting from the Fed, it will most likely be below 25%. I believe that’s too high of a number for the Fed to be comfortable and they’d like it to be lower.

Coins forming house

When you start to see what happens the second half of the year, you get to a level that the Fed is much more comfortable with and I believe that the Fed will stop their quantitative tightening and reverse course. 

The Fed’s balance sheet will be a critical component because less supply on the market means that interest rates should improve because the buyers will be bidding on fewer amount of paper or supply that’s available.

Mortgage Rate Forecast

So what’s the mortgage rate forecast for 2024?

Well, for 2024, I see 30-year fixed rate mortgages in the mid-fives (later in the year) to high-six range (early in the year).  Under 6% rate on mortgages should unlock move of buyers and create more activity.

The 10-year Treasury will fluctuate between 3% and 4.4%, as we are starting the year a little above 4%. I believe that the overall trend, while it might move up and down a little bit, will be to gravitate towards 3%, which is good news for mortgage rates.

2024 Forecast graphic

And maybe we get a more normal return to the spreads between Treasuries and mortgage rates, which is around 2%, not 3%. So that should help mortgage rates reduce as well.

Real Estate Forecast

Let’s turn our attention to real estate.

The forecast for real estate centers again on supply and demand, and the supply is tight. Look at inventory over the last 10 years, how it continues to decline while our population goes up:

Real Estate forecast graphic
Real Estate forecast graphic 2

Demand is continuing to be very, very strong. The blue lines represent households being formed.

As you can see, there are far more households being formed than builders putting up homes. This is why the real estate market’s been so strong of late and why you we seeing prices increase due to a lack of inventory. It’s going to be a similar story for 2024.

We won’t see much more inventory, although we will see more activity.  But, we don’t see the amount of supply coming to market in order to meet that demand. So that’s why prices should stay firm.

Appreciation forecast graphic

I’m forecasting between 4.5% and 5% home appreciation nationwide.

But, perhaps even a greater importance while we have a very solid real estate valuation market, is that overall real estate transactions should rise by 15% to 20% in 2024. Good news for the economy in general, for sure.

In Conclusion

It’s looking like 2024 should be a much better year for real estate!  Do reach out to me to discuss how you might be able to move forward in 2024 to take advantage of this changing market!

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The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

The Benefits of the FHA Loan – and Why It’s a Popular Choice Right Now

House with porch

FHA (Federal Housing Administration) loans can be a great choice for many looking to purchase a primary residence, and not just first-time homebuyers. These loans offer several advantages that make home ownership more accessible.

Loan dice tiles

One of the key benefits of the FHA loan is the lower down payment requirement, making it easier for individuals with limited savings to enter the housing market.

Lower Down Payment

One of the standout features of FHA loans is the reduced down payment requirement. While conventional mortgages often demand a larger down payment, sometimes around 20%, FHA loans typically require only 3.5% down.

This lower upfront cost opens doors for prospective buyers who may struggle to come up with a significant down payment, providing a more attainable path to home ownership.

Gifts for Down Payments

Gift package

Receiving FHA gift funds can make it easier to qualify for an FHA loan…but borrowers must follow a particular process for eligibility. First, the money can’t be a loan – it has to be a gift with no scheduled repayment.  Secondly, it must be a family member, a charitable organization, an employer, or a governmental agency assisting families or first time buyers.

FHA guidelines for gift funds include:

  • Gift funds must be from an acceptable source such as savings accounts, stocks, or savings bonds
  • Gift funds must be verified entering into a borrower’s bank account and leaving the donor’s bank account
  • Documentation showing proof funds are not a collateralized loan such as an FHA gift letter

Borrowers may have to provide additional supporting documentation, as well.

Mortgage Insurance

Mortgage insurance premium (MIP) is a type of mortgage insurance that is required of homeowners who take out loans backed by the FHA.  For most borrowers that bring in a 3.5% down payment, the fee is .55 of the loan amount.

So, if you have a $300,000 FHA loan, your monthly mortgage insurance would cost $137.50 per month.  In many cases, this mortgage insurance is MUCH less expensive than that of conventional loans and private mortgage insurance (PMI).

You can learn more about mortgage insurance here…

Accessible Credit Requirements

FHA loans are also known for being more forgiving when it comes to credit requirements.

Credit card with key

Conventional mortgages may be challenging for individuals with less-than-perfect credit scores, but FHA loans are designed to accommodate a broader range of credit profiles.  Most investors will lend with a credit score of 580 or better.

This enables people with lower credit scores to qualify for a home loan, giving greater opportunities for those who may have faced obstacles in the conventional mortgage market.

Flexible Qualification Criteria

FHA loans offer flexibility in qualifying criteria, considering factors beyond traditional income and credit scores.

Lenders can take into account compensating factors, such as a history of timely rent payments or utility bills, making it easier for individuals with unique financial situations to secure a mortgage. This flexibility allows the consideration for a more diverse set of borrowers in the homebuying process.

Government Backing and Stability

FHA loans are backed by the federal government, providing an additional layer of security for both lenders and borrowers.

HUD logo

This backing makes lenders more willing to approve loans for individuals who may not meet the stringent criteria of conventional mortgages. The government support also helps stabilize the housing market by providing a reliable option for financing, even during economic downturns.

In Conclusion

FHA loans provide a range of benefits that contribute to making homeownership more accessible for a diverse group of borrowers. From lower down payment requirements, to the use of gift funds, to flexible credit criteria and government backing, these loans play a crucial role in expanding opportunities for prospective homebuyers.

Do reach out to me for more regarding these FHA programs, as it would be my pleasure to help in any way possible!

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The Fed’s Decision, Continued Home Appreciation, and Refinance Opportunities

Business and desk

There’s been a flurry of news recently, so let’s take a look at what’s been going on – both with interest rates and home valuation.

Is the Fed Done With Rate Hikes?

After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday, just like they did in September.

The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.

Jerome Powell

When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line?

The Fed’s decision to pause rate hikes for the second straight meeting was unanimous. However, Fed Chair Jerome Powell did leave the door open for another rate hike at their next meeting on December 13.

The strength of the labor sector remains a key factor in their decision, with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes.

While the latest job reports for October were weaker than forecasted, it remains to be seen if that’s enough for the Fed to pause additional hikes.

The Fed will see November’s job data from ADP and the BLS (releasing December 6 and December 8, respectively), along with upcoming inflation reports, which will certainly play a role in their decision.

Home Prices Hitting New Highs

Home price graph

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.9% from July to August after seasonal adjustment, marking the seventh consecutive month of gains.

The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.6% in August, with their index reporting gains every month so far this year.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line?

Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 6-8% depending on the index, based on the reported pace of appreciation through August.

These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.

House with cash

Refinance Opportunities

Refinances still make up almost one third of all mortgage transactions, even though rates have risen.  You may be wondering how this can be? 

Many consumers have amassed a large amount of debt, paying much higher rates of interest, thanks to the Fed hiking rates so aggressively.  And many of those individuals are only making the minimum payments, with no path to paying off their debt. 

At the same time, most homeowners have record levels of equity in their homes.

Many homeowners are benefiting from a type of refinance where we pull that equity out of the home to pay off those debts, saving money on the overall monthly payments. 

Additionally, there are ways to gain equity at an accelerated pace and significantly shorten the length of your mortgage, by applying those savings as an additional payment each month.

Call me today to review your current debt situation and see if I can help!

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Interest Rate Forecast For November | Any Relief in Sight?

Copper bowl

I’m asked all the time about mortgage interest rates and what the future holds.  I’m not a prognosticator, but I can link to a few.

Percent and house

Mortgage rates increased for the 6th week in a row, reaching their highest point since December of 2000. 

The average 30-year fixed rate mortgage moved from 7.57% on Oct. 12 to 7.63% on Oct. 19, per Freddie Mac.

Mortgage rates have fluctuated significantly this year and have consistently moved upward in the second half of 2023. The average 30-year fixed rate was as low as 6.1% on February 2nd and climbed up to 7.63% on October 19th, according to Freddie Mac.

Here’s what some of the experts are saying…

For the full story from The Mortgage Reports, click here

Please do contact me for more, as it would be my pleasure to discuss what’s happening in the marketplace and strategies for purchasing today!

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