How will this mortgage fee overhaul affect you?
Starting Monday, a little-known mortgage surcharge is changing. It could help those with lower credit scores lower their costs, but raise them for borrowers with stronger credit scores.
If you're buying a home, here's what's new: the change has to do with the so-called loan level price adjustment fee, or LLPA. For some, it will be lower, and for others, it will go up.
Matt Gouge, founding partner of UMortgage, says the goal is to ease the burden on those who've struggled to afford a home.
"Lower credit score, lower down payment are receiving the most benefit," he said. "Their fees are going down the most."
For example, a homebuyer with a credit score between 640 to 659 with a down payment of 5% will incur an LLPA of 1.5%—down from 2.75%.
But for others, it's going up. Homebuyers with credit scores of 740 to 759 and putting 20% down will face a new LLPA of 1%—compared with 0.5% previously.
The updated fee only impacts homebuyers and doesn't have any impact on people who already have a mortgage or who own their homes outright. It also won't impact the roughly 40% of mortgages that aren't backed by Fannie Mae or Freddie Mac.
"I think the thing that's getting a lot of backlash is that's OK to do that, say we're going to make this less expensive, but not at the cost of someone who's been responsible," Gouge said.
He added, "I think for a lot of people, these fees won't stop someone from buying a house. It's more kind of like really? Seriously? I agree with that 100%."
One big question is: will those fees increase?
"Let's hope not. Let's hope that if there's anything in the mortgage world that's going to help those with lower down payments, or with lower credit scores, or those historically unable to buy a home," Gouge said.
Experts say if you have any questions, it's best to consult your lender.
