Mortgage fees just changed yesterday (5/1/23). The changes are designed to make it easier and more affordable for more people to own homes. Essentially, mortgage fees will be lower for people with lower credit scores and higher for people with higher credit scores. It is crucial to note that this does not mean that people with lower credit scores will pay less, while those with higher credit scores will pay more!
That’s not the case. According to the changes, those with higher credit scores will still pay less, but you will not incur hefty penalties if you have a lower credit score. The new changes to the mortgage structure will help people who struggle to purchase their first homes. Lower-income households usually have lower credit scores, and it is challenging to afford a home.
What is Loan Level Price Adjustment (LLPA)?
Numerous factors affect the cost of a home loan, including the down payment, the type of property, and the credit score. These factors (variables) help lenders price loans for risk. Loan level price adjustment helps lenders calculate the risk and avoid being undercapitalized or overexposed to it. For example, if you have a credit score of 740 and make a 20% down payment under the new mortgage fee structure, you will incur a fee of 0.875. An increase from the previous 0.5%. On the other hand, if you have a credit score of 640 and make a 20% down payment, you will pay an LLPA fee of 2.25%, which is lower than the previous 3%. Remember, these changes do not impact mortgages insured by other agencies, for example, the Department of Veteran Affairs, the Federal Housing Administration, or the Department of Agriculture.