Fannie Mae Raises LLPA Fees for Most Borrowers
A loan level price adjustment (LLPA) is a method that conventional loans use to factor in risk factors when applying for home loan.
For some borrowers using a conventional loan, your costs are going up on September 1st, 2015.
Understanding LLPA the Changes
This first chart shows in bold what changes will take affect.
There are 2 very evident areas that will experience a noticeable increase in closing cost fees. Credit scores above 700, and 97% loan to value programs.
This graph will cover most of your owner occupied purchases, and owner occupied, rate and term refinance. The average cost increase is .25% of the loan amount in the affected areas.
In the below chart, you will see the Loan Level Price Adjustment for high loan to value loans, mostly because of the increase across the board, which we saw increased in the chart above.
Investment Property Costs Increase
Investment property pricing adjustments increase an average of .375% across all loan to values and all credit scores.
Cash Out Refinance Changes
Cash Out Refinances get hit hard with pricing changes. Above, you will see what the LLPA would be if your lender is able to meet the August 31st, 2015 deadline. Below you will find the changes for all loans after September 1st, 2015.
Not only have there been significant fee increases across the board, cash out above 80% loan to value is no longer available.
The last big change is a real party pooper for anyone looking for the great new 80/10/10 options that are available to help avoid mortgage insurance. Mortgages with Subordinate Financing includes everything except a State, County, City, or other authorized “Community Second” mortgage.
How LLPA’s Affect Interest Rates
LLPA costs are risk based pricing adjustments tied most commonly to property type, finance type, credit score and loan to value. The result is that you have a collection of “fees” that are required by Fannie Mae and Freddie Mac on all conventional loan programs.
Risk based pricing is the reason why most borrowers associate lower credit scores with higher interest rate loans. While it is true that lower credit scores can result in more Loan Level Price Adjustments, what most lenders do not disclose, is that these fees can be paid by you as part of your closing costs.
In almost all cases, the extra costs associated with the type of loan, property, and your credit and equity position, are translated into the cost associated with your interest rate. If you are short on cash, or do not have access to assistance or a gift, taking a higher interest rate just to get into the property is usually a really smart move.
Ask an Expert
Being prepared is the purpose of this article. If you got pre-approved 6 months ago, you may not still be pre-approved. If you are pre-approved today, you may not still be pre-approved 6 months from today.
Understanding how your closing costs are calculated will help you to make more informed decisions about buying, or refinancing your home.
Part of being prepared, is means exploring all of your options, so that you are making an educated decision. If you have a question or comment, feel free to start a conversation below and I can get you pointed in the right direction.