The Federal Housing Finance Agency (FHFA) has announced that pricing of interest rates for vacation homes and high balance loans will be increasing. The implementation date of these increases will be April 1, 2022, which means lenders are starting to roll the increases out asap (since that implementation date means your loan must close and be received by Fannie Mae/Freddie Mac).
If you are considering a home purchase or refinance and fall under either of these categories, it will benefit you to secure financing sooner rather than later!
- A vacation home is self-explanatory: a second home that you buy for your own use
- A high balance loan amount depends on the county the property is in. In our high-cost Bay Area Counties, this is a loan amount between $647,201 and $970,800.
The increases are pretty significant, especially when coupled with natural market increases. There are many factors that go into the rate and cost that you are quoted, such as Loan-to-Value ratio, credit score and property type, but I’d like to highlight the changes if you were to be putting down 20% (or in refinancing, if your Loan-to-Value ratio was 80%):
- High Balance loan amount, purchase and no cash out: Increasing by .75% (example of a $700k loan amount, this results in an increase of $5,250)
- High Balance loan amount, cash out: Increasing by .75% (example of a $700k loan amount, this results in an increase of $5,250)
- Vacation home occupancy: Increasing by 3.375% (example of a $700k loan amount, this results in an increase of $23,625)
Do note that the increases are not as drastic for lower Loan-to-Value ratios, but will be higher than what you can currently lock in. I think this will ultimately result in a decrease of high balance loans being sold to Fannie/Freddie, and instead homeowners and home buyers will look into securing a Jumbo loan, which can be more restrictive in qualifying, but may not have such drastic hits. It’s good for you to be informed and be assured that you are getting the best deal available.
