Freddie Mac & Fannie Mae recently made some changes to their loan requirements that impacts what loan products are readily available to consumers. One of those changes is making interest rates on second homes jump and another may make investment property loans more difficult to get. Second homes make up a huge portion of the Summit County real estate market. In addition to that, 75% of buyers get loans on the Summit County home they are buying. These Fannie & Freddie changes are huge in our market.
How mortgages work
After a lender gives you a mortgage to buy your home they often times will sell your loan to the government entities, Fannie Mae & Freddie Mac. The lenders don’t want to have to keep that loan on their books and have deposits and income to cover it. In order for Fannie & Freddie to buy that loan, it has to meet certain requirements. As a result, lenders have to use Fannie & Freddie requirements when they make loans so they have the assurance they can sell it and it won’t remain on their books.
Changes to Fannie & Freddie requirements
Fannie and Freddie recently changed their requirements for loans they will buy. These changes will be reflected in every banking institutions’ available products if they plan to sell those loans. One change limits the percentage of second home and investment property loans a lender can give. If a lender’s numbers don’t line up with those numbers, lenders have to change how they lend or come up with portfolio products that they can put their customers into. Portfolio products are loans the lender will keep on their books and not sell off. Some lenders are even electing to change their percentage of second home/investment loans by no longer offering loans on investment properties.
The second change is interest rates on second homes and investment properties. In the past, interest rate on second homes would be only slightly higher, if not the same, as for primary residences. Now it will have to be higher, approximately 1% higher. That will impact the affordability factor for second homeowners.
Impact on the Summit County real estate market
The market is strong enough and interest rates are so low now, I think these changes will have minimal impact on the Summit County real estate market. As rates increase or market demand decreases, that higher interest rate may have more impact on buyers.
Utilize our mortgage calculator to find out what impact a change in interest rate will have on your monthly payment.