Are you ready for some mind boggling news? A groundbreaking new rule is set to hit the scene on May 1st, and it’s turning the status quo on its head. Brace yourself, those with good credit scores and higher down payments will be hit with higher mortgage payments by $40 to $60 a month! Meanwhile, riskier borrowers are set to benefit from reduced fees and more favorable terms. Yes, you heard that right. The system is being flipped on its head, and it’s bound to cause a stir.
This is a big deal, folks. We’re talking about major changes in the way we think about home lending. The implications of this rule are far reaching and could impact millions of Americans across the country. If you’re a prospective home buyer, you need to read up on this new regulation to understand how it could impact your future mortgage payments.
Get ready for an eye opening experience! Take a moment to watch the video above and dive into the accompanying article to gain a deeper understanding of what’s happening and how it will impact you. It’s crucial to stay informed and aware of the changes taking place around us. This video and article combo will give you the knowledge you need to stay ahead of the game. So don’t wait, dive right in and equip yourself with the knowledge to navigate the ever changing landscape of our world!
Whats Going On?
The result of this new rule, according to industry leaders is pricier monthly mortgage payments for home buyers with higher credit scores and who plan on putting more money down. This is flipping the norm on its head!
Under the new rule, higher credit buyers with credit scores ranging from 680 to 780 will see a spike in their mortgage payments and with applicants who place 15-20% own experience the biggest increase in fees.
The Federal Housing Financing Agency (FHFA) will enact changes to fees known as loan level price adjustments (LLPA) on May 1st that will affect mortgage originating and private banks nation wide – from Wells Fargo to JP Morgan Chase.
Loan level price adjustments (LLPA) are upfront fees based on factors like the borrowers credit score and the size of their down payment.
Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15-20% down payment will face a 1% surcharge, an increase of .75% compared to the old fee of just .25%
When absorbed into a long term mortgage rate, the increase is equivalent to slightly less than a quarter percentage point in the mortgage rate. On a $400,000 loan with a 6% mortgage rate, buyers can expect their monthly payment to rise by about $40 a month.
Meanwhile buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount. This is a decrease from the old rate of 3.5% for that bracket. When absorbed into the long term mortgage rate, that equates to a 0.4% to 0.5% discount.
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What To Expect?
These new rules, starting May 1st, 2023, will affect home purchases and refinances! But will only affect home loans that have over 15 year term. So, if you’re planning on purchasing a home with at 15 year mortgage, then you’re in the clear!
What they’re really doing is turning things upside down. They are penalizing home buyers with better credit and more money down to subsidize home buyers with lower credit and less money down.
The fee structure changes are the latest of several moves by the FHFA aimed at boosting affordability for what the agency calls its “Mission Borrowers” : Defined as first time home buyers, low income borrowers, and applicants from underserved communities.
What The Experts Are Saying:
Ian Wright, a senior loan officer at Bay Equity Home Loans says: “These changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well.” He continues “confusing borrowers is never a good thing.” New home buyers who were planning on putting more money down, sometimes saving for years, will get penalized. This will entice many to choose to put less money down on a home.
The President of the National Association of Realtors, Kenny Parcell, says “In the wake of a 3% increase in mortgage rates NOW is not the time to raise fees on home buyers.” FHFA director, Sandra Thomas, says that the changes will increase pricing support for purchasers and borrowers limited by income or by wealth. Sandra says that his overall fee change is minimal.
In the wake of rampant inflation and housing affordability at its lowest level in history, every dollar counts. It seems they couldn’t have picked a worse time for this change.
Overall, lower credit buyers will still pay more in LLPA fees than high credit buyers, but the latest change will close the gap. This will also help many low income, low asset, and low credit score buyers obtain mortgages.
I for one think the core of the issue is the lack of financial education, across the board, at a young age. This seems to be more of a band-aid, rather than getting at the root cause of the problem.
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