According to experts, if you plan to purchase a new home any time soon, there are some new rules in place that may affect how much you pay for your mortgage. Learn about the changes concerning credit scores and home buying.

Let the Lafayette Team with EXP Realty help you navigate the confusing world of credit scores and home buying. In this article, we’ll explain what you need to know about some major changes that are coming.

On May 1, the Loan Level Price Adjustments will cause the upfront fees on Freddie Mac and Fannie Mae loans to go up. These fees are based on various factors, including:

  • Borrower’s credit score
  • Size of down payment
  • Type of home

Historically, the higher your credit score, the lower your fees. However, with these new rules, this may not be the case.

What do these changes do?

These changes are being made because the Federal Housing Agency wants to strengthen capital at Fannie Mae and Freddie Mac and to provide equitable, sustainable access to homeownership. This means that borrowers who have been unable to access credit will find it easier to get a mortgage loan.

Who is impacted?

These rules only apply to new or refinanced home loans signed after May 1, 2023, through Freddie Mac or Fannie Mae. These two lenders comprise approximately 60% of all new mortgage loans in 2020, compared to only 42% in 2019.

While this new rule means that buyers who put down less than 20% may see an increase in fees, it shouldn’t change their thoughts on home buying. Another part of the home buying equation is mortgage insurance. If you put down less than 20%, you must pay mortgage insurance, which offsets the lower upfront fees. Therefore, there’s no advantage to putting down a lower down payment

How does it work?

The fees are slightly higher for those with good credit and lower than those with less-than-perfect credit. However, if you have good credit, you’ll still pay less than you will for a weak one- but the penalty will be much smaller. Therefore, the advantage of having a high credit score or a larger down payment is not as big.

Are the changes good for everyone?

This depends on whom you are asking. Some believe that the changes are positive, while others believe that they penalize those with good credit. The new rules do not address the inventory challenges that are causing home prices to go up.

Some experts are concerned that these new rules will encourage banks to underwrite mortgage loans to unqualified buyers. This is what caused the financial crisis of 2008- banks loaned too much money to unqualified buyers who could not pay it back.

Even with the changes, fees are still in favor of borrowers with good credit- so tanking your score won’t help.

If you are planning to buy a home in or near Lexington, let the experts at the Lafayette Team with EXP Realty help. We specialize in working with first-time homebuyers and sellers. We can help you navigate these confusing new rules and get the home of your dreams.