New FHFA mortgage rules could punish the financially saavy


The Federal Housing Finance Agency (FHFA) recently announced some changes to their formula that will directly affect Loan Level Price Adjustments (LLPAs) that are set by underwriters Fannie Mae and Freddie Mac. Scheduled to take effect on May 1st, these changes were intended to lower mortgage costs for entry-level homebuyers, however, could have the inverse effect on well-qualified buyers.

What this means for mortgage borrowers

Overall, this doesn’t involve a huge amount of money. But when inflation has raged for 2+ following invasive Covid-19 regulations which routinely taxed the American public, every penny seems like a large amount. Also note that these changes only impact loans that are backed by Fannie Mae or Freddie Mac.

According to CBS News, this change will mostly impact closing costs. It could also create a spread of around 1% between well-qualified buyers and those who tend to struggle in the credit score department. The FHA had stated earlier this year that their rule changes were designed to level the playing field and assist borrowers from marginalized communities. What they didn’t tell you was that this would be done at the expense of well-qualified buyers who have made all the right choices. This could also impact buyers that are attempting to tap into their equity using a HELOC.

“As with anything else, the best way to protect yourself from mortgage fees is to shop multiple brokers and mortgage companies.”

D.C. Poc

According to Business Insider, “Borrowers will be charged higher fees than they previously would have paid. A borrower with a 700 credit score and a 20% down payment previously would have paid an upfront fee equal to 1.25% of the loan amount — $3,750 on a $300,000 loan. Now, their fee has been raised to 1.375%, or a total of $4,125 on a $300,000 loan.” I don’t know about you, but that’s not insignificant. FHFA Director Sandra Thompson goes onto argue that some well-qualified buyers will actually end up paying less fees, and that this is all a big misunderstanding. I guess we’ll have to wait and see.

How to protect yourself

As with anything else, the best way to protect yourself from mortgage fees is to shop multiple brokers and mortgage companies. By doing this you can ensure you have found the very best rate, and in fact, may be pleased to learn that some lenders are more than willing to pick up more closing costs to earn your business, especially if you’re a highly-qualified buyer. Shop around and make sure you’re getting the best deal.

The other way to help your own situation is to negotiate the best deal possible with the seller. Make sure you’re not leaving anything on the table. You can use the inspection report as leverage to try and gain a few thousand dollars back in your pocket. Whatever you do, make sure you’re not overpaying in today’s market or you may actually be overpaying twice. Ouch!

The positive news

The good news is that you don’t have to buy a house. It’s not a requirement of society and it’s certainly not something you should let one of your slimy friends talk you into. If you need some help, check out our mortgage calculator. This might help you gain some insight as to whether or not you can afford a mortgage at all. Additionally, you should check out some buy vs. rent calculators. Buying a home can certainly help create wealth, but it isn’t always the right choice, and knowing that up front is a huge advantage.

The only person who should be making the decision on home ownership is YOU. Don’t rush it. Take your time and make a well-informed decision. Hopefully we can help you out along the way.

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