Rising mortgage fees for high balance loans and second home loans
Higher mortgage costs en route for some
The Federal Housing Finance Agency has announced that it will increase the fees for certain home loans as of April 1, 2022.
These new upfront fees will affect high balance mortgages and second homes sold to Fannie Mae and Freddie Mac. And, as with most fee hikes, the cost will be passed on to borrowers in the form of higher interest rates.
If you’re in the market to borrow above the compliant loan limit or ultimately buy that vacation home, acting as early as possible could save you a lot of money.
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Who will be impacted?
The price increases target borrowers applying for high balance conventional loans and those for secondary properties.
As a perspective, conventional mortgages account for about 64% of home purchase loans, according to the National Association of Realtors.
High balance mortgages are those with a balance above the benchmark compliant loan limit – $ 647,200 in 2022 for about 95% of the United States
And a second home is any property that you will be living in on a part-time basis, but it will not be your primary residence.
Why is the FHFA increasing fees on high balance loans and vacation homes?
The FHFA has adjusted the fees to facilitate “fair and sustainable access to property” while improving the “regulatory capital position of Fannie and Freddie over time,” said Acting Director of the FHFA, Sandra L Thompson.
Basically, this means that the new fees will strengthen the FHFA’s cash reserves.
Fees are also a way to help first-time home buyers and low- and moderate-income borrowers access credit. First-time homebuyers in high cost areas with incomes at or below their median area income will be exempt from the fees.
The newly increased fees “should provide an opportunity for government sponsored businesses (GSEs) to reduce fees on the mission-focused parts of their businesses that primarily serve first-time borrowers and low to moderate income,” according to Mortgage Bankers. President and CEO of the Association, Robert Broeksmit.
Both fee increases will take effect on April 1.
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How much are the new compliant loan fees?
The initial charge for high balance loans purchased by GSEs will increase on a graded scale between 0.25% and 0.75%, depending on the loan-to-value ratio.
The up-front charge for second home loans will increase between 1.125% and 3.875%, also scaled and depending on the loan-to-value ratio.
How much of the new charge is absorbed by lenders and how much is passed on to the borrower will depend on the lender.
“It is difficult to model how much, but [the new fees] unequivocally means higher rates “
In this scenario, lenders will likely inflate the mortgage rate they offer on these types of loans to offset their new costs incurred.
“It’s hard to model how much, but it unequivocally means higher rates. This is how it works, ”according to an expert in community loans.
However, if the lender knows that they will be able to complete the sale of the loan to Fannie or Freddie before the new fees kick in, they will not have to increase the price, the expert continued.
Apply before costs go up
If you are considering taking out a loan above the compliant base limit or buying a second home, two factors should push you to act quickly: the increase in FHFA fees and the expected rise in interest rates. for 2022.
The FHFA has set an April 1 date for the fee increases “to minimize disruption to the market and pipelines,” according to its press release.
Whether or not the new fees go into effect will depend on the characteristics of each loan and the time it takes between request and delivery. Giving your lender as much time as possible will likely help everyone involved.
“If this is a purchase transaction, consumers should be very aware of the contract settlement date,” said Kyle Manseau, COO of Allied Mortgage Group.
“And ideally the industry and lenders need a bit of a buffer from when a loan is funded, for post-closing, to prepare it for delivery to GSEs – usually about a week. In reality, we are looking at 30 to 40 days.
With that buffer in mind, submitting your application approximately two months before April 1 to allow for regular processing time could help you avoid new fees.
If you’re considering a high balance loan or mortgage for a second home, there’s no better time than now to get a low rate.
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