FHFA eliminates upfront mortgage fees for 1 in 5 home buyers

First-time homebuyers are expected to see lower borrowing costs

If you’re looking to buy a home, you might be in luck — at least if you’re taking out a standards-compliant loan. The Federal Housing Finance Agency (FHFA) eliminates fees on these mortgages for about 20% of homebuyers. It’s a move that could lower interest rates and improve affordability for many Americans, especially as housing costs rise.

Could you see your borrowing costs drop as a result of these changes? Here’s what you need to know.

Who is eligible for lower borrowing costs?

There are four groups of homebuyers for whom their upfront loan fees — also known as guarantee fees or “G fees” — are eliminated when they use traditional loans backed by Fannie Mae or Freddie Mac.

These include:

  • Low- to middle-income first-time home buyers: You must have a household income of 100% or less of the area’s median income (or 120% or less if you are in a high-cost housing market).
  • Buyers using the HomeReady (Fannie Mae) or Home Possible (Freddie Mac) loan programs: Both ready to go and home possible are low-down payment mortgage options for low-income buyers
  • Buyers using HFA Advantage (Freddie Mac) or HFA Preferred (Fannie Mae) loans: HFA loan are affordable mortgages offered by state and local housing finance agencies (HFAs).
  • Single-Family Loans Covered Under the Duty-to-Serve Program: This program helps low- and middle-income families with funding manufactured housing and rural home purchases

Bob Broeksmit, President of the Mortgage Bankers Association, said: “Given the ongoing affordability challenges faced by homebuyers, the FHFA’s targeted adjustments to the GSE’s pricing framework are timely and will initially improve access to credit for low-income households and middle-income -time shoppers and minority shoppers.”

On the other hand, some borrowers will actually see higher costs as a result of the announcement. New fees for refinance loans with disbursement will be introduced early next year, according to the FHFA.

How Much Money Are Eligible Homebuyers Saving?

For most home buyers, this change won’t actually result in a reduction in upfront costs. G fees are usually passed on to buyers in the form of higher interest rates, so eliminating these fees results in lower interest rates. This helps borrowers save on both their monthly payments and their long-term interest costs.

The exact fee a borrower pays depends on their loan amount, credit history, and other factors. But according to the FHFA, the average G fee in 2020 was 54 basis points — the difference between a 5% rate and a 5.54% rate.

For a $300,000 30-year mortgage, a 0.54% interest rate reduction would save borrowers about $100 a month and $36,000 in interest over the life of the loan.

When does the new regulation come into force?

The goal is to implement these new fee adjustments as soon as possible, but the FHFA has not yet announced an official implementation date. The agency simply said, “FHFA will be working with the companies and will announce an implementation date shortly.”

The new cash-out refinancing fees, on the other hand, have an implementation date. These will be introduced on February 1, 2023.

Your next steps as a home buyer

If you want to take advantage of these cheaper loans, contact a mortgage professional in your area. You can discuss your eligibility as well as the loan program that is right for you. You may also want to sign up for FHFA news updates. They will notify you once an implementation date has been announced.

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

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