Mortgage interest rates and fee structures are increasing for second home financing, thanks to the Federal Housing Finance Agency (FHFA).
The FHFA has announced targeted escalations to Fannie Mae and Freddie Mac’s upfront fees for second home loans.
Here’s their announcement:
Upfront Fee Adjustments for Second Home Loans to Take Effect
For second home loans, upfront fees will increase between 1.125 percent and 3.875 percent, depending on the loan-to-value ratio.
Why The Change?
Essentially, this appears to be the FHFA’s attempt at revenue redistribution. They will be charging more for 2nd home financing in order to facilitate increased participation in first-time and low-income borrower programs.
In a statement, FHFA Acting Director Sandra Thompson said the fee increases are to provide better access to mortgages for first-time and low-income borrowers, as well as strengthen Fannie Mae’s and Freddie Mac’s balance sheets.
“These targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” said Thompson.
“Today’s action represents another step FHFA is taking to strengthen the Enterprises’ safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers.”
In short, it looks like second homeowners will be footing the bill and helping fund first-time buyer and low-income borrower programs.
What Does it Mean?
For mortgages on 2nd homes, they will now look nearly identical to investment properties in terms of rates and fees.
Traditionally, 2nd homes had similar rates and fees relative to primary residences. Here are a few sample scenarios prior to the FHFA’s move…assumptions: 760 credit score, 20% down (80% loan-to-value):
Primary residence or 2nd home
- Interest Rate – 3.5%
- Points – $0
Investment Property – single family residence
- Interest Rate – 4.5%
- Points – 1.5 (1.5% of the loan amount)
After April 1st,, here’s what we can expect:
Primary residence
- Interest Rate – 3.5%
- Points – $0
Second Home or Investment Property – single family residence
- Interest Rate – 4.5%
- Points – 1.5 (1.5% of the loan amount)
These rates/fees are just examples to show the differences in between primary residences and 2nd home/investment properties. Of course, rates are subject to change daily.
Also, these increases are for loans purchased by Fannie Mae and Freddie Mac on/after April 1st, 2022 – and most lenders will need to have these increases in place for loans closing in March.
For example, under the new plan, the buyer of a second home with a $300,000 mortgage loan amount and loan-to-value ratio of 65% will pay an additional fee of $4,875 if their mortgage is acquired by Fannie Mae or Freddie Mac, per the National Association of Home Builders.
Prior to the policy change, the same buyer would pay no additional fee for the comparable mortgage.
Dissenters
“With the nation in the midst of a housing affordability crisis and many more workers electing to telework, this is exactly the wrong time for federal regulators to be raising fees on homeownership and second homes,” Chuck Fowke, chairman of the NAHB, which has spoken out against the fee increases.
The National Association of Realtors (NAR) chimed in, as well: “Fannie Mae and Freddie Mac will face greater risks as the market is waned off of the extraordinary federal support during the pandemic, and these changes may help them to support the maximum access and affordability possible for the market in a sound manner,” said NAR President Leslie Rouda Smith.
“However, we are concerned that any fee increases that exceed necessary levels in the current environment will harm affordability and access for consumers. REALTORS® believe any excess revenues gleaned from the fee increases must be used to support homeownership opportunities in underserved communities, expanding affordability and access in a safe manner.”
In Conclusion
Unfortunately, get ready to pay more for your second home.
As always, mortgage rates for second homes will depend on a borrower’s credit score and down payment. With current mortgage rates on the rise during the first part of 2022, some market watchers are even forecasting that the new fees could increase interest rates to nearly 5% for second home purchases late this spring.
If the new mortgage interest rates aren’t to your liking for 2nd homes, you always have the alternative lending market to explore. There are other options out there!
Do reach out to me to find out more, as it would be my pleasure to help you!
