JACKSONVILLE, Fla. — Starting on May 1, home buyers with higher credit scores may end up paying more in mortgage fees, while those with lower scores could pay less.
The Loan-Level Pricing Adjustment (LLPA) is a fee that is based on the risk of the borrower using a conventional mortgage and not an FHA mortgage. It’s based on a borrower’s loan-to-value ratio, credit score, occupancy type, and number of units in a property.
Tim Newman, president of North Florida Mortgage Brokers, said the extra fees are based on a constantly sliding scale based on an applicant’s credit score and down payment.
“What we see right now is an LLPA for folks who have between a 720 and a 760 credit score and are putting 15-20 percent down. In my book, that’s a really well-qualified borrower, but these changes are going to give those folks higher fees,” Newman said.
Newman said that the change in rates will help those within the range of a 660 credit score, but that have a high down payment. He said that it’s not just for first-time homebuyers, but that it’s also beneficial when buying a second home, and also to investors.
When asked about how those would bad credit would be affected, Newman replied: “There is no incentive to have low credit at this point. It is definitely more expensive to own a home with lower credit. This just applies to a few caveat positions on conventional loans where folks are going to be hit with fees.”
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While those with higher credit scores may have to pay more, Newman said there is a way to avoid higher fees -- just pay less up front.
“What I want people to know is that they don’t have to pay those fees, they can just put a lower payment; this is about equity at this point.”
The changes to LLPA rates begin on Monday, May 1.