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Mortgage fees spike for high-balance and second home loans

Mortgage fees spike for high-balance and second home loans
Written by Publishing Team

Higher mortgage costs are on the way for some

The Federal Housing Finance Agency has announced that it will increase fees on certain mortgage loans effective April 1, 2022.

These new advance fees will affect the higher balance and mortgage loans that were sold to Fannie Mae and Freddie Mac. As with most fee increases, 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 matching loan limit or finally buy that vacation home, acting sooner rather than later can save you a lot of money.

Find your lowest rate. Start here (January 8, 2022)


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Who will be affected?

The rates increase target borrowers applying for both conventional high balance loans and those for second real estate.

From a perspective perspective, traditional home loans account for about 64% of home purchase loans, according to the National Association of Realtors.

High balance mortgages are those that have a balance above the matching base loan amount – $647,200 in 2022 for about 95% of the US

A second home is any property you will live in part-time, but this will not be your primary residence.

Why is the FHFA Raising Fees on High Balance Home Loans and Vacation Loans?

Sandra Thompson, the FHFA’s acting director, said the FHFA made adjustments to fees in order to facilitate “fair and sustainable access to home ownership” while improving “Fannie and Freddie’s regulatory capital position over time.”

Essentially, this means that the new fee will bolster the FHFA’s cash reserves.

Fees are also a way to help first-time homebuyers and low- and middle-income borrowers obtain credit. First-time homebuyers in high-cost areas with incomes at or below the median income in their area will be exempt from the fee.

According to the mortgage banker, the newly raised fee “should provide an opportunity for government-sponsored enterprises (GSEs) to lower fees on the mission-focused parts of their business that primarily serve new and low-to-medium income borrowers.” Association President and CEO Robert Broxsmith.

The two fee increases will take effect on April 1.

Find the lowest mortgage rate before it goes up (January 8, 2022)

What are the fees for a new matching loan?

The initial fee for high-balance loans purchased by public service organizations will increase over a graduated range between 0.25% and 0.75%, depending on the loan-to-value ratio.

The upfront fee for second home loans will increase between 1.125% and 3.875%, which is also tiered and dependent on the loan-to-value ratio.

How much of the new fee the lenders absorb and how much of that is passed on to the borrower will go back to the lender.

“It’s hard to say how much, but [the new fees] unequivocally means higher rates.”

In this scenario, lenders are likely to inflate the rate of the mortgage they offer on these types of loans to offset the new cost incurred.

“It’s hard to quantify, but it unequivocally means higher rates. That’s how it works,” according to the community lending expert.

However, if the lender knew that they would be able to carry out the sale of the loan to Fannie or Freddy before the new fees began, they wouldn’t have to raise their price, the expert continued.

Advance before costs rise

If you’re considering taking a loan above your baseline limit or buying a second home, two factors should prompt you to act quickly: the increased FHFA fee and the projected increased interest rates for 2022.

The FHFA has set an April 1 date for the fee hike “in order to minimize market and pipeline disruption,” according to its press release.

Entering before the new fees take effect will come down to the characteristics of the individual loan and the time it takes from application to delivery. Giving your lender as much implementation time as possible will likely help everyone involved.

“If it’s a buyout, consumers need to be fully aware of the contract settlement date,” said Kyle Manso, chief operating officer of Allied Mortgage Group.

“And ideally, the industry and lenders would need a small amount of buffer from loan funding time, beyond closing, to prepare it for delivery to GSEs — generally a week or so. Realistically, we’re looking at 30 to 40 days.”

With this temporary period in mind, submitting your application about two months before April 1 to allow for a regular processing time may help you avoid new fees.

If you’re looking for a high-balance loan or a second home mortgage, there’s no time like the present to secure a low rate.

Show me today’s rates (8 January 2022)

The information on the Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed here are those of the author and do not reflect the policy or position of Full Beaker, its officers, parents, or affiliates.

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