Are you planning to buy a home with a conventional loan? Here’s what you need to know:
What are LLPAs?
LLPAs are fees that lenders charge on top of the interest rate to adjust for the risk of the loan. For example, if you have a lower credit score or a smaller down payment, the lender may charge a higher LLPA to offset the risk of default. LLPAs are typically expressed as a percentage of the loan amount, and they can increase the overall cost of your loan.
What’s changing on May 1, 2023?
The Federal Housing Finance Agency (FHFA) recently announced that LLPAs for conventional loans will be changing on May 1, 2023. The FHFA sets the standard LLPAs for loans purchased by Fannie Mae and Freddie Mac, which are the two government-sponsored entities that provide liquidity to the mortgage market.
The new LLPAs will adjust for a borrower’s credit score and loan-to-value ratio (LTV), which is the percentage of the home’s value that you’re borrowing. Borrowers with lower credit scores or higher LTVs will generally face higher LLPAs, while borrowers with higher credit scores or lower LTVs may face lower LLPAs.
How will this affect borrowers?
The new LLPAs could impact the interest rate you’re offered and the overall cost of your loan. For example, if you have a lower credit score and a higher LTV, you may be charged a higher LLPA, which could result in a higher interest rate and a more expensive loan. On the other hand, if you have a higher credit score and a lower LTV, you may be charged a lower LLPA, which could result in a lower interest rate and a less expensive loan.
It is important to note that not all lenders will implement the new LLPAs in the same way. Some lenders may choose to set their own LLPAs or adjust their interest rates to compensate for the changes. That is why it is important to talk to Golden Lenders about your options for the best loan terms.
Golden Lenders helps home buyers in Colorado, Florida, Ohio, and California understand the different types of purchasing options that are available and provides loans to help people achieve the dream of homeownership. Since the specifics of which purchasing method to choose is dependent on a variety of factors, we encourage you to call us for more information and find out which is right for you. Our number is (303) 482-2361, or you can send us a message.