How New Mortgage Fees Could Affect Some Loans

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Fannie Mae and Freddie Mac impose new fees on mortgages in expensive areas and on second homes. For the fraction of borrowers targeted by the change, the new fees can add thousands of dollars in upfront costs.

The higher prices are affecting owners of primary residences with mortgage amounts above $647,200 and owners of vacation homes with mortgages of all sizes.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the additional charges last month. The new fees take effect April 1. However, since mortgages can take a few months to close, borrowers have started noticing the new fees.

“We’re already seeing it appear in price lists,” says Kevin Quinn, senior vice president of First Internet Bank in Fishers, Indiana.

The new price adjustment ranges from 0.5% to 1% of the amount of high-balance loans in high-cost housing markets. For mortgages on second homes, the initial charge will vary from 1.125% to 4.125%, depending on the amount of the down payment.

“In addition to the recent spike in mortgage rates, the inclusion of higher fees for many buyers in high-cost markets or those buying second homes could impact a borrower’s ability or willingness to proceed with the transaction,” said Greg McBride, chief financial officer of Bankrate. analyst.

“Taxing home buyers”

The National Association of Home Builders opposed the new fees, saying it was “strongly opposed” to imposing additional costs on homeowners.

“With the country in the midst of a housing affordability crisis and many more workers choosing to telecommute, now is not the time for federal regulators to raise homeownership fees and second homes,” says Chuck Fowke, president of the builders trade group. . “Yes [the Federal Housing Finance Agency] is genuinely interested in promoting housing affordability, the agency would not tax homebuyers to bolster the capital positions of Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency says it takes affordability into consideration. For example, first-time buyers with incomes below the median income level for their region will not have to pay the fee.

How new fees affect buyers in high-cost housing markets

For home purchases in most parts of the United States, Fannie and Freddie limits the amount you can borrow – to $647,200 in 2022 (it’s adjusted every year). Take a mortgage for more than that, and it’s classified as a jumbo loan. Jumbos are considered “non-conforming loans”, meaning they do not meet agency standards. So in most cases, Fannie and Freddie won’t back or buy them, making these loans riskier for lenders and, traditionally, more expensive for borrowers – even if, in a twist, rates jumbo loans were actually lower than conforming loans at the start of 2022. .

However, Fannie and Freddie also realize that not all real estate markets are created equal: Homes cost more in San Francisco than in St. Louis. Thus, they allow borrowers from more expensive regions to take out larger loans to varying degrees.

For example, in parts of coastal California, the New York metropolitan area, and all of Alaska and Hawaii, the loan limit this year is $970,800. In Boulder County, Colorado, the 2022 limit for compliant loans is $747,500. In Florida’s Monroe County, home to the Keys, the limit is $710,700. In the Nashville metro area, it’s $694,600.

These are the mortgages that fall between $647,200 and the upper local limits — called super conforming loans or high balance loans – which are subject to the new fee. Fees will vary from 0.5% to 1%, depending on the loan to value ratio. Thus, a loan of $900,000 with the least favorable loan-to-value ratio will be subject to a 1% fee, or an initial fee of $9,000.

How the New Fees Affect Second Home Mortgages

For second home loans, the new upfront fee will be between 1.125% and 4.125%, depending on the loan-to-value ratio.

For example, a borrower with a mortgage of $300,000 and a loan-to-value ratio of 65% will pay an additional fee of 1.625%, or $4,875.

According to Fannie Mae, borrowers who do not pay at least 20% down payment will pay a high fee of 4.125% of the loan amount. So, borrowing $400,000 on a $450,000 vacation home would mean paying a hefty $16,500 charge.

Previously, second home buyers paid no additional fees on loans purchased by Fannie and Freddie.

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