BIG Changes to Mortgage Costs Announced
The closing cost fees for a vast majority of new mortgages have changed. In some cases, the changes are drastic, some for the better and some are worse. Here is a quick look at the changes. If you have any questions on how this will apply to you, please feel free to call me.
Fees and Costs are adjustable, depending upon certain “features” of your credit picture and mortgage requirements.
Officially called Loan Level Price Adjustments (LLPAs), they are charged by Fannie Mae and Freddie Mac the two entities that guaranty a vast majority of new mortgages. LLPAs are based on loan features such as your credit score, loan-to-value ratio, occupancy (owner vs non-owner occupied homes), and most recently, your debt-to-income ratio.
When does this take effect?
This applies to loans that are guaranteed by the agencies starting May 1st, 2023. That means most lenders will begin to implement the changes in March/April.
What lenders/loans does this apply to?
This applies to MOST mortgage loans in the US, if they are to conform to Fannie Mae or Freddie Mac standards. Hence the term “Conforming Mortgages”. “Non-conforming” loans are not impacted by this as they are not guaranteed by the agencies. Examples of loans that wouldn’t be affected could be FHA/VA as well as certain jumbo and specialty products.
What changed, in a nutshell?
The effective penalty for having a credit score under 680 is now smaller than it was. It still costs more to have a lower score. For instance, if you have a score of 659 and are borrowing 75% of the home’s value, you’ll pay a fee equal to 1.5% of the loan balance whereas you’d pay no fee if you had a 780+ credit score. But before these changes, you would have paid a whopping 2.75% fee. On a hypothetical $300k loan, that’s a difference of $3750 in closing costs.
The most notable change is a new charge for DEBT-TO-INCOME (DTI) ratio. This will be controversial in many scenarios as income calculations can be subjective and debt calculations can be legitimately “tweaked” with some advanced planning and/or debt consolidation. If your DTI is over 40% and you’re borrowing more than 60% of your home’s value, you’ll be paying more.
- Several changes to 2-4 unit property LLPAs
- There’s a new generic LLPA for “subordinate financing” (a 2nd loan or HELOC) whereas the previous LLPAs were more granular depending on the LTV of first loans vs subordinate loans
- BIG increases in fees for many “Cash-Out” loans
Don’t let this discourage you. I can help you navigate towards the lowest closing costs and fees.
Just ask me!