Dreaming about owning your first home? You’re not alone, as millions of people become homeowners each year.
But there’s no doubt it’s become increasingly more unattainable with higher interest rates and record-high home prices.
Thankfully, this year’s mortgage rate structure fees could give potential homeowners some relief. Our quick guide will cover the update’s details and what it means for homeowners going forward.
Let’s get started.
How Do Loan-Level Price Adjustments (LLPAs) Work?
Also known as Federal Housing Finance Agency (FHFA) fees, Loan-Level Price Adjustments (LLPAs) have been around since 2008. These fees are basically a way for the government to determine prices for different types of borrowers.
Until now, if you have good credit and pay your bills on time, you’d pay a lower monthly payment overall. However, those with multiple risk factors or a bad credit score would have additional fees to pay to receive a similar loan.
Other factors that affect your LLPA are the loan amount, how many properties you own, or the type of property you want to purchase.
What Changes Should You Expect To See?
This year (2023), the FHFA adjusted the LLPAs to make mortgages more accessible to specific households.
For example, the old system would charge someone with a 5% down payment and a fair credit score with an LLPA of 2.75%. Using the average US home price of $339,000, that would be a total of $9,322.
But with the updates, that same person would now see their LLPA fee reduced to 1.5% or $5,085—over a $4,000 difference.
On the other hand, those with higher credit scores will see a slight increase in their fees. A person making the same down payment but with a high credit score would see their fee increase from .5% to .875%.
While they’ll still have to pay less than those with lower credit scores, the gap won’t be as wide as before.
Why Were Mortgage Fees Updated?
It all boils down to making housing more affordable for those who might’ve been priced out of the market.
Since 2019, median home prices have ballooned over 50%, and wages haven’t kept up.
With increasingly unattainable prices and higher fees, many mid to low-income Americans have found themselves working tirelessly to come up with the money to find their forever home.
These new fees ensure home ownership is still accessible to those who need it most.
Will The New Fees Hurt Those With Good Credit?
We’re sure you’ve heard a few news sources referring to the new fees as “penalties” for those with good credit.
But that couldn’t be further from the truth.
You don’t have anything to worry about if you’re a homebuyer with a solid credit score. In most cases, fees will largely stay the same.
While a few may see their payments increase slightly, some homebuyers with high credit scores could see their fees decrease if they lower their initial down payment.
But even if you pay a higher fee, you’ll still have a lower LLPA than those with lower credit scores.
The Bottom Line
Buying your dream house has become much easier with the FHFA’s new LLPA fees.
If you’re a first-time homebuyer, had a bad credit score, or were previously priced out of the market, these changes will give you the support you need to access the housing market.
However, there’s no doubt that purchasing a house in the U.S. is still expensive, especially when you’re looking for more affordable options. Always do your research and work with a reliable mortgage professional who knows your local market.
We’ll also keep you updated on any new homeowners’ benefits you can take advantage of!
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