Big Expensive Changes for Second Homes and Investment Properties

Last night, Fannie Mae announced they are essentially going to be limiting how many second homes and investment properties they will provide mortgages for. This is largely due to the additional risk associated with second homes and investment properties. This goes into effect with loans delivered to Fannie Mae on April 1, 2021 – which pretty much means “immediately” as mortgage loans are delivered to Fannie Mae (or Freddie Mac) after they close…sometimes weeks after they close with the originating mortgage company.

Pricing for second homes and investment properties are increasing dramatically. Some lenders are already pricing these hits in to prepare for when loans are delivered to Fannie Mae or Freddie Mac.

This is the current loan level pricing adjustment (LLPA) for Fannie Mae as of this morning, March 11, 2021.

The percentages shown are based on the loan amount. For example, currently a second home (or a primary) with a loan to value of 75% or less would not have any additional price hit and an investment property would cost 2.125% of the loan amount more in fee (based on percentage of the loan amount) than a primary residence or second home. Often times the fee/points is priced into the interest rate.

I am find finding that some of our lenders are not pricing this in yet (as I write this) and some already are. Here is an example from one lender. Since this is based on when loans are delivered (vs when they close) many lenders will have to start making price adjustments now.

Some lenders are pricing in 2.250% (percentage of the loan amount) higher for second homes and a whopping 5.075% (points, percentage of the loan amount) for an investment property with a loan to value of 80% or less.

Again, as I write this, I have some lenders that we work with that are not yet hitting pricing with new adjustments – but I expect that will change.

Roughly 1% in fee equates to around 0.25% in interest rate. So an 80% loan to value on a second home may now have a rate that is about 0.500% to 0.625% higher in interest rate and an investment property at 80% would be roughly 1.25% higher in rate… although I’m trying to price out investment property right now and it’s not pretty.

In my opinion, when changes like this take place, they REALLY should be based on the date the loan is originated. Lenders cannot control when a loan is being transferred to Fannie Mae or Freddie Mac – which again, takes place after closing.

If you are currently in the process of financing a second home or investment property, I highly recommend contacting your mortgage professional to make sure that your rate is locked.

If you are considering getting a mortgage on a second home or investment property, I highly recommend that you contact a local mortgage professional as soon as possible to see what your current pricing may be. It’s possible you may still be able to lock in a lower rate, especially based on how low rates currently are. Click here if you would like a no-hassle rate quote for your home located anywhere in Washington state.

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