The Federal Housing Finance Agency (FHFA) recently made a statement that upfront fees for specific high-balance and second-home loans were going to increase beginning April 1, 2022. If you are considering buying a home, then doing so prior to the change may be smart. Here is everything you need to know about the increase in upfront FHFA fees.
The FHFA new pricing framework will take place on April 1, 2022; increasing the upfront fees for any high-balance and second home loans sold to Fannie Mae and Freddie Mac. The fee increase will be at least 0.25% depending on the loan-to-value ratio. Home loans not subject to the fee increase are:
- The HomeReady program
- The Home Possible program
- The HFA Preferred and HFA Advantage
- First-time homebuyers in high-cost areas with income below 100% of area median income
The FHFA fee increase may seem harsh in an already saturated market. However, the FHFA Acting Director Sandra Thompson states, “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.” Essentially, this increase is another step taken to strengthen the government-sponsored enterprises’ safety and ensure access to credit for first-time homebuyers (FHFA.gov).
Upfront fees are premiums added to the cost of a loan. They account for certain higher-risk lending scenarios. Typically, these fees are reflected in the interest rate and not necessarily paid “upfront.” This is something to discuss with your lender.
Cost of This Change
The exact increase amount will depend on your specific situation, as every loan is unique. More specifically, the amount will depend on your loan-to-value ratio (LTV), which is the amount of the loan as a percentage of the property’s value. The FHFA is implementing fee increases ranging from 0.25% to 0.75% for high-balance loans and 1.125% to 3.875% for second-home loans.
Note: A higher loan-to-value will impose a greater risk which in turn will incur a higher fee.
If you are concerned if this change will impact your current home purchase or refinance, then it is important to note that this will generally not apply to primary residences (aside from high-balance loans).
I Want to Purchase a Second Home, What Should I Do?
If you are thinking about purchasing a second home and are concerned about the fee increase, then take the time to prepare and educate yourself! You can start by setting a plan and saving for a down payment and any fees now! Until then, be sure to make yourself knowledgeable about the second home buying process. Start educating yourself today by downloading our FREE home buyer guide today.
Want to get ahead in your home buying process? Start preparing the best possible financial portfolio you can. So when buying a home, especially a second home, having great credit, a good down payment, reserves, and a good debt-to-income ratio is huge. These factors all play a part in your interest rate and mortgage loan in total.
Bottom line, the FHFA increase fees will take place on April 1, 2022. These fees will be applied to second homes and high-cost loans. If you have any questions about the homebuying process, then connect with one of our expert team members today! We are always ready and available to help you with any of your home buying needs!