Fannie Mae and Freddie Mac are imposing new fees on mortgages in pricey regions and on second homes. For the fraction of borrowers targeted by the change, the new charges can add thousands of dollars in upfront costs.

The higher pricing affects owners of primary homes with mortgage amounts above $647,200, and owners of vacation homes with mortgages of any size.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the added fees last month. The new charges take effect April 1. However, because mortgages can take a couple of months to close, borrowers have begun noticing the new charges.

“We’re already seeing it show up in price sheets,” says Kevin Quinn, senior vice president at First Internet Bank in Fishers, Indiana.

The new price adjustment ranges from 0.5 percent to 1 percent of the amount of high-balance loans in high-cost housing markets. For mortgages on second homes, the upfront fees will range from 1.125 percent to 4.125 percent, depending on the size of the down payment.

“In addition to the recent spike in mortgage rates, the inclusion of higher fees for many buyers in high-cost markets or those purchasing second homes could impact a borrower’s ability or willingness to proceed with the transaction,” says Greg McBride, Bankrate’s chief financial analyst.

‘Taxing home buyers’

The National Association of Home Builders has objected to the new fees, saying it’s “strongly opposed” to imposing additional costs on homeowners.

“With the nation in the midst of a housing affordability crisis and many more workers electing to telework, this is exactly the wrong time for federal regulators to be raising fees on homeownership and second homes,” says Chuck Fowke, chairman of the builders trade group. “If [the Federal Housing Finance Agency] is truly interested in promoting housing affordability, the agency would not be taxing home buyers to pad the capital positions for Fannie Mae and Freddie Mac.”

The Federal Housing Finance Agency says it’s taking affordability into consideration. For instance, first-time buyers with incomes below their area’s median income level won’t have to pay the fee.

How the new fee affects buyers in high-cost housing markets

For home purchases in most areas of the United States, Fannie and Freddie limit the amount you can borrow — to $647,200 in 2022 (it’s adjusted annually). Take out a mortgage for more than that, and it’s classified as a jumbo loan. Jumbos are considered “nonconforming loans,” meaning they don’t adhere to the agencies’ standards. So, in most cases, Fannie and Freddie will not back or purchase them, which makes these loans riskier for lenders and, traditionally, more expensive for borrowers — though, in a twist, jumbo loan rates were actually lower than conforming loans in early 2022.