Buying a second home or investment property is likely to get easier and less expensive following a rule roll-back for Government-Sponsored Enterprises (GSEs) Freddie Mac and Fannie Mae.
The Federal Housing Finance Agency (FHFA), the overseer of Fannie and Freddie, and the U.S. Department of the Treasury are suspending limits placed on how many investment property loans, second home loans, and other higher-risk loans Fannie Mae and Freddie Mac can purchase from lenders.
An FHFA press release states there is a one-year suspension on such rules, and if the FHFA and Treasury take no further action, the restrictions would be put back in place at that time. For now, though, things are looking brighter for rental property investors and those seeking a vacation home.
What the rule changes mean for vacation home and investment property mortgage rates
Once the changes have had time to bake into the mortgage industry, buyers of second homes and rental properties will find lower rates on these loans.
Under the old provisions, second home and investment property mortgages could make up just 7 percent of GSE loan counts on a 52-week average. Some lenders increased rates and fees to slow the volume of these mortgage products and avoid delivering too many of these loans to Fannie Mae and Freddie Mac.
Now, lenders no longer have to worry about these limits. They can offer market rates for second home and investment property mortgages regardless of their current volume.
“With these restrictions lifted, it should improve mortgage rates for second homes and investment properties,” said Michael Blake, President of Capital Markets at Fairway Independent Mortgage Corporation, which owns Home.com.
Blake commented that Fairway would be improving its own vacation/investment loan rates as of Monday, September 20, 2021.
Those who have been locked out of buying or refinancing a rental or vacation home due to high rates and fees should seek a new quote in the next few days or weeks.
“High risk” loan caps lifted as well
The Senior Preferred Stock Purchase Agreement (PSPA), after the January revisions, also capped GSE purchases of “high risk” loans at 6 percent of their purchase mortgages and 3 percent of refinance mortgages. These caps have also been rolled back. High risk loans contain at least two of the following characteristics:
- Loan-to-value above 90 percent
- Borrower debt-to-income ratio above 45%
- Borrower credit score below 680
David M. Dworkin, President and CEO of the National Housing Conference, called suspending limits on higher-risk loans “an essential step towards increasing opportunities for those who have been denied access to the American dream of homeownership.”