FHFA cuts upfront mortgage fees for about 1 in 5 home buyers

First-time home buyers are about to see lower loan costs

If you’re on the hunt for a home, you may be in luck — at least if you’re using a standard conforming loan. The Federal Housing Finance Agency (FHFA) is eliminating fees on these mortgages for about 20% of home buyers. It’s a move that could lower rates and boost affordability for many Americans, particularly as housing costs rise.

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

Who qualifies for lower loan costs?

There are four groups of home buyers that will see their upfront loan fees — also called guarantee fees or “G-fees” — eliminated when using conventional loans backed by Fannie Mae or Freddie Mac.

These include:

• Low- to median-income first-time home buyers: You must have a household income at or below 100% of the area median income (or at or below 120% if you’re in a high-cost housing market)
• Buyers using the HomeReady (Fannie Mae) or Home Possible (Freddie Mac) loan programs: Both HomeReady and Home Possible are low-down-payment mortgage options for low-income buyers
• Buyers using the HFA Advantage (Freddie Mac) or HFA Preferred (Fannie Mae) loans: HFA loans are affordable mortgages offered through state and local housing finance agencies (HFAs)
• Single-family loans that fall under the Duty to Serve program: This program helps low- and moderate-income families finance manufactured housing and rural housing purchases

Bob Broeksmit, president of the Mortgage Bankers Association, explained, “Given the ongoing affordability challenges facing homebuyers, FHFA’s targeted adjustments to the GSEs’ pricing framework are well-timed and will improve access to credit for low- and moderate-income households, first-time buyers and minority buyers.”

On the flip side, some borrowers will actually see increased costs as a result of the announcement. According to FHFA, new fees will be implemented on cash-out refinance loans early next year.

How much money will eligible home buyers save?

For most home buyers, this change won’t actually lead to a reduction in upfront costs. G-fees are generally passed on to buyers in the form of higher interest rates, so eliminating them will lead to lower rates. This will help 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 score, and other factors. But according to FHFA, the average G-fee came in at 54 basis points in 2020 — the difference between a 5% rate and a 5.54% rate.

On a $300,000, 30-year mortgage, dropping the rate by 0.54% would save borrowers around $100 per month and $36,000 in interest over the life of the loan.

When does the new rule take effect?

The goal is to get these new fee adjustments in place as soon as possible, but FHFA has not announced an official rollout date just yet. The agency simply said, “FHFA will work with the Enterprises and announce an implementation date shortly.”

The new cash-out refinance fees, on the other hand, do have a launch date. Those will roll out on Feb. 1, 2023.

Your next steps as a home buyer

If you want to take advantage of these lower-cost loans, talk to a mortgage professional in your area. They can discuss your eligibility, as well as which loan program might be right for you. You may also want to sign up for FHFA news updates. These will alert you once an implementation date has been announced.