Mortgages are about to get more expensive. Here’s why.
On Wednesday March 15, the Federal Housing Finance Agency (FHFA) announced that they will be delaying the Loan Level Price Adjustments (LLPA) for certain borrowers with debt-to-income (DTI) ratios above 40 percent for a total of 90 days. The new effective date will be for deliveries on or after August 1, 2023. Check out the statement announcing the delay, from FHFA Director Sandra Thompson.
Fannie Mae recently announced new loan level pricing adjustments (LLPAs) that will take effect on May 1, 2023. These adjustments will impact borrowers’ mortgage rates and may result in higher costs for many customers, particularly those with lower credit scores, higher debt-to-income ratios, and smaller down payments.
The changes in LLPAs include increasing fees for borrowers with higher debt-to-income ratios and smaller down payments, and additional fees for several specific loan types. Borrowers with credit scores between 720 and 760 will generally pay more in LLPA fees — sometimes several thousand dollars more. Additionally, most cash-out refinances and mortgages for second homes and investment properties will be hit with large increases in fees.
Fannie Mae stated that these changes are necessary to better reflect the risk of the loans it purchases and ensures that it can continue to provide affordable and sustainable mortgage financing for homebuyers. However, the fee increases could make it more difficult to afford a home, especially if they are already struggling to qualify for a mortgage.
To avoid these fee increases, customers should apply for a mortgage ASAP and lock in at current rates. Depending on the borrower’s credit score, debt-to-income ratio, and down payment, this could potentially save them thousands of dollars over the life of the loan.