Are you planning on securing a second home or high-balance mortgage in the coming months? If so, it’s important to know that early this year the Federal Housing Finance Agency (FHFA) announced an increase in the fees charged on these loans. Loans that are sold to Fannie Mae and Freddie Mac will be subject to the fee increases. In this blog post, we are going to dive deep into what these fee increases might mean for you.
Loan-Level Price Adjustments
On Jan. 5, 2022, Fannie Mae sent out a letter to lenders announcing revised pricing for second-home and high-balance loans. According to the letter, these loan-level price adjustments (LLPAs) are effective for all whole loans purchased on or after April 1, 2022, as well as for loans delivered into mortgage-backed security (MBS) pools issued on or after the same date.
But what exactly does this mean for borrowers? If you are buying a second or vacation home, these loans may have higher interest rates. Especially those lenders that sell these types of loans to the secondary market. How much of the new fees lenders absorb and how much they pass to the borrower will be up to the lender? On second homes the fees range from 1.125 percent to 4.125 percent price adjustment, depending on the loan-to-value ratio. Lenders will likely increase the interest rate to offset the increased costs passed on to the lender from the investor buying the loan.
Mortgages that have balances exceeding the limit of $647,200 are known as high-balance mortgages, according to The Mortgage Reports. For these loans, FHFA is issuing the following price adjustments, which also depends on the loan-to-value ratio and could affect costs:
- High-balance (Purchase or limited cash-out refinance): 0.5 percent to one percent
- High-balance (Cash-out refinance): 1.25 percent to 1.5 percent
- High-balance (ARM): 0.75 percent to 1.75 percent
- These fees are cumulative, meaning if the purpose is a cash-out refinance and the loan product is an adjustable rate mortgage, both fees will be factored into the resulting interest rate.
Fannie Mae also announced that they will not charge a high-balance price adjustment for first-time homebuyers with income less than or equal to 100 percent of their area’s median income.
Not Sure What to Do? We Can Help
One thing’s for sure—the homebuying and mortgage landscape can be a difficult one to grasp. Luckily, if you are thinking about obtaining a second home or high-balance mortgage in the upcoming months, our Mortgage Loan Officers are here to help you make the best financial decisions. Cornerstone Bank will not be passing on any of the newly announced fees for second homes or high-balanced mortgages onto our customers. Give us a call today at 800-939-9103 or reach out to us online to get started.