These days most home mortgage loans that are NOT FHA loans are sold to Fannie Mae and Freddie Mac. In 2008 Fannie & Freddie introduced Loan Level Price Adjustments (LLPA\’s) to add on costs based o credit scores, loa purpose, occupancy, number of units, property types and product types. For example, if you put less than 25% down on a condo, you likely will have .75% added to your conventional loan, regardless of your credit score, income and money in the bank. Or, if your FICO was 715 and you put 20% down on a $450,000 house, you were also probably charged an additional .25%. Only if your FICO was 740 or higher would there be no adjustment for FICO.

Well, it just got worse! Effective April 1 of this year, both Fannie and Freddie are raising their loan fees. The worst is the credit score/LTV adjustment. Even if you have an 800 FICO (pretty rare, as highest is 850) you would now pay an additional .25% cost. So, on a $400k loan with 20% down your closing costs just went up $1000!! Does this make sense if you are making $100k and have perfect credit?

Well, if you have a lower FICO, say 680 because you missed a payment or two or you co-signed for your kid who didn\’t make his payment, it gets worse. Your LLPA is 1.5%, which, for that $400k loan with 20% down means an additional $6000.
Ostensibly, the reason for these fees is to mitigate risk–we know lending is risk management. Is a borrower with an 800 FICO, putting 20% down on a SFR a high risk? To avoid his .25% extra fee, our borrower would need to put 25% down or more and you better improve that credit score to 740 at least.

So, is there a moral here? Yes, improve that credit score well in advance of applying for a home loan. If you don\’t you will pay thousands more in points or much more in interest over the life of the loan. Ask your mortgage broker for more information when you apply for that loan.

Did you think this was confusing? Me too! There was a new survey done by MortgageMatch that shows that people think the mortgage process has gotten MORE confusing. Well, guess what? It\’s getting worse, not only because of the adjustments discussed above, but also because the entire industry\’s compensation model is being overhauled. These changes are being market under the name of \”consumer protection\” but in reality nothing changes for the banks, as they will trade closed loans like they always have, but blame the changes on \”evil big government\”.

Also, one change that will impact buyers in high cost areas, such as Marin County, CA where I work, will be the possible (probable) reduction in the Fannie/Freddie maximum loan amount from $729,500 to $625,500, and an income cap on those applying for FHA loans. So, get that inheritance early or lower your expectations.!

We work with many Mortgage Brokers who can advise you about what you can afford, how you can improve your credit, and how to find the best rates and lenders out there. We encourage everyone to do that before you start trolling open houses, as we expect our market here to drift to a level playing field–favoring neither buyers or sellers.

Author Bio: Jennifer Loucks is an experienced Real Estate Broker with a Law Degree who works in Marin County, CA. She was the co-owner of a nationally know franchise for 5 years and currently lives and works in San Rafael. See http://www.RealtyForReality.com

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