Considering a Second Home or Investment Property? New Fees Could Make It More Expensive; Local Mortgage Lender Says Now’s the Time to Act

vacation home
Image via WSFS Bank.
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Purchasing an investment property or second home will soon cost more due to new upfront fees for second-home loans by the Federal Housing Finance Agency. Potential owners looking to finally buy that vacation home in the Poconos, or at the Jersey Shore, are encouraged to seek advice on how the fees will impact their purchases.

“The demand for second homes is still incredibly strong, whether it be the beach house or the mountain home or a ski lodge property,” said Jeffrey Ruben, President of WSFS Mortgage in Wayne. “It has been motivated by the work-from-home model a lot of companies have adopted out of necessity due to the pandemic.”

According to Ruben, the situation has contributed to a shift in what the home is for — not just a retreat or place to raise a family, but a place where one can operate and work productively.

“Many people are now taking a step back and saying, ‘If I have to work at home, maybe I can work in an environment I’ve always enjoyed,’” he said.

As the oldest, locally-managed bank in the region, WSFS has seen more than one pandemic in its history, having also persevered through the infamous Spanish Flu pandemic of 1918.

Jeffrey Ruben.

Like the bank itself, WSFS Mortgage prides itself on being customer-oriented and transparent. With a wide product offering, it does everything from standard purchases and refinances to FHA and VA loans, and USDA rural-based lending. The unit finished 2021 just shy of originating $1 billion in mortgage loans.

Many of those loans were for second-home purchases, a target of the FHFA’s new fees announced recently for loans sold to Fannie Mae and Freddie Mac. For second-home loans, upfront fees will increase between 1.125 percent and 3.875 percent, tiered by loan-to-value ratio. According to a statement by the FHFA, the fee increases are another step it is taking to facilitate equitable, sustainable access to homeownership for first-time buyers and low- and moderate-income buyers, and to improve its regulatory capital position over time. The rates will take effect April 1.

“I think that was their way of saying they were not going to exit the second-home market, but price it so it won’t be as attractive,” said Ruben. “This will aid them with their core mission, which is helping Americans purchase their primary home, the one they are going to live in, not the one where they are going to spend only 10 weeks out of the year in.”

While Ruben still sees this as a great time to buy a second home, he suggests that buyers who are able to act quickly will benefit the most, because for each week a buyer waits, the more expensive the property will become. And with a second home being a luxury purchase rather than a “need” purchase, saving up for it has never been more critical. For example, buyers who want to do an 80 percent (i.e., 20 percent down), 85 percent or 90 percent purchase of a second home will find it more difficult today.

“We have historically been pretty successful and thought-forward in structuring loans, and we may start looking at second-home purchases where we can become a little creative, structuring it where we can take advantage of where the most beneficial financing lives,” said Ruben. “But the cost of financing is only one aspect of it. The other one is the true cost of the house, and it seems like the cost of the home is outpacing the increased cost of financing, so acting sooner rather than later is smart. If a buyer is prepared and has the ability to put up a more meaningful down payment, that is going to be the key to success in winning a bid and making it all affordable and efficient.”

WSFS Mortgage always encourages its clients to do their homework up front on their financial situation, making sure their financial house is in order before looking for that second home, especially in a market so competitive that sellers do not want to hear about things like mortgage contingencies.

“We encourage buyers to talk to us before they start that home search because the more prep we do upfront with them, especially in terms of qualifying for a certain mortgage and how much they will need, the better position they will be in to look at a home more confidently and become a successful bidder,” said Ruben. “That’s where we help people. We have clients who thank us over and over for getting them to think about that part first, which has led them to be successful in buying the home they wanted.”

Learn more about WSFS Mortgage.