Starting May 1, 2023, the Federal Housing Finance Agency (FHFA) introduced new upfront fee structures for mortgages backed by Fannie Mae and Freddie Mac. These changes impact costs for first-time buyers, homeowners refinancing, and investors. Here’s a quick summary:
- First-Time Buyers: Lower fees for credit scores under 680; slight increases for scores above 740.
- Homeowners Refinancing: Fees now depend on debt-to-income (DTI) and loan-to-value (LTV) ratios, with higher DTIs incurring extra costs.
- Investors: Adjusted fees for investment property loans, with higher costs for high DTIs and lower credit scores.
These updates aim to balance affordability for buyers with financial stability for GSEs. Borrowers should focus on improving credit scores, reducing debt, and comparing loan options to minimize costs.
Key Takeaway: Credit scores, DTI, and LTV ratios now play a bigger role in determining mortgage fees. Plan strategically to reduce upfront costs.
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New GSE Fee Structure
Starting May 1, 2023, the FHFA introduced updated upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans.
Fee Changes Explained
The updated structure includes three separate base fee grids based on the loan’s purpose:
- Purchase Loans: Fees now vary based on credit score ranges and loan-to-value (LTV) ratios.
- Rate-Term Refinance: Adjusted fee levels tied to revised credit score categories.
- Cash-Out Refinance: New fee adjustments reflecting updated LTV requirements.
Why the Changes?
These updates aim to:
- Improve the financial stability of Fannie Mae and Freddie Mac.
- Maintain access to homeownership over time.
- Create fair competition between large and small mortgage sellers.
- Ensure returns on capital investments meet market standards.
Impact on Loan Processing
Lenders handling loans delivered or acquired after May 1, 2023, must incorporate the new credit score and LTV matrices into their workflows.
Next, we’ll discuss how these fee changes influence first-time buyers, current homeowners, and investors.
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Fee Impact by Buyer Type
These changes in fees affect upfront costs differently depending on the type of buyer.
First-Time Buyer Costs
Upfront fees for first-time buyers now depend on their credit scores. For example, a borrower with a 659 credit score taking out a $300,000 loan at 75% loan-to-value (LTV) now pays $4,500 (1.5%) instead of the previous $8,250 (2.75%) [1]. On the other hand, buyers with credit scores of 740 or higher and borrowing 75% of their home’s value now face a 0.375% fee, which is an increase from the previous 0.25% [2].
Existing Homeowner Costs
Refinancing fees are now tied to a borrower’s debt-to-income (DTI) ratio and credit score. Homeowners with a DTI over 40% and an LTV above 60% will see an additional fee. While high-credit borrowers refinancing may experience a slight fee increase, those with lower credit scores could see reduced fees. These adjustments impact the approximately 60% of new mortgages backed by Fannie Mae and Freddie Mac [1][2].
Investment Property Costs
Investment property loans now follow the updated fee grids set by the GSEs. Whether it’s a rate–term refinance or a cash-out refinance, the new fees apply. Investors with high credit scores might notice a small fee increase, while those with lower scores could pay less [2]. Additionally, any borrower – including real estate investors – with a DTI over 40% and borrowing more than 60% of the property’s value will face an extra fee [1].
Managing New Fee Changes
Use three key approaches – timing, loan selection, and professional guidance – to help reduce these fees.
When to Apply
As of May 1, 2023, borrowers with mid-600s credit scores now face lower upfront fees. Additionally, the delayed introduction of the extra fee tied to debt-to-income (DTI) and loan-to-value (LTV) ratios offers a brief opportunity for buyers with higher DTIs to act. Consider these timing factors and weigh product trade-offs to manage costs effectively.
Loan Options
Look closely at annual percentage rates (APRs) across different offers. Sometimes, lower upfront fees might result in a higher interest rate, so it’s important to compare carefully.
Working with Loan Experts
Speak with your loan officer to understand how loan-level price adjustments affect your situation. They can clarify how your credit score, down payment, and DTI factor into costs. They might also suggest strategies like consolidating debt or lowering monthly payments to make your loan more manageable.
Summary
Starting May 1, 2023, GSEs updated upfront fees based on factors like credit score, loan-to-value (LTV) ratio, occupancy type, and debt-to-income (DTI) ratio. Here’s how these changes affect different buyer profiles:
- First-Time Buyers: Reduced fees for credit scores under 680. Prioritize improving your credit and managing your DTI.
- Existing Homeowners: New fees apply if your DTI exceeds 40% and your LTV is above 60%. Focus on lowering your debt.
- Investment Properties: Fees are higher for properties that aren’t owner-occupied. Increasing your down payment can help lower your LTV.
Aim for a credit score of 780 or higher and keep your DTI below 40%. Work on timing your application, comparing APRs, and consulting a mortgage expert to secure the most favorable rates.
For more details, check out guidance on timing, loan options, and expert advice (see Managing New Fee Changes).
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