new mortgage fees

New Mortgage Fees – What Every Homebuyer Should Know

You’ve probably seen a lot of negative press lately about recent controversial changes implemented by Fannie Mae and Freddie Mac (the government-sponsored enterprises that buy and guarantee mortgages from lenders for mortgage borrowers). The take-away is that the changes in mortgage fees will benefit borrowers with lower credit scores and smaller down payments, while potentially hurting borrowers with higher credit scores and larger down payments.

To summarize: When applying for a mortgage, lenders assess the borrower’s financial situation and credit history to determine their risk as a borrower. Based on this assessment, a risk-based pricing system is used to determine fees that compensate for that risk. These fees are based on factors such as the size of the down payment, credit score, and property type.

Lenders then pass on these fees to borrowers in the form of higher interest rates or upfront charges. The idea behind these changes was to make homeownership more affordable for a larger segment of the population. However, the changes have been controversial, as they appear to benefit those with lower credit scores and smaller down payments at the expense of those with higher credit scores and larger down payments. The practical application of these changes means that borrowers with good credit may see a slight increase in their interest rates, while those with credit scores less than 680 may see a slight improvement, but there is no scenario where someone with a less desirable credit profile will have a lower fee than someone with a stellar credit profile.

On the good news front, one of the positive aspects of the changes is that first-time homebuyers do not have to pay any fees at all if they make less than 100% of the area median income limit — $95,700 in the Atlanta Metro Area. It’s important to note that these changes only apply to conventional loans and do not affect FHA or VA loans or any specialty products. Regarding the common misconception that a 20% down payment is required to obtain a residential mortgage loan, the truth is that first-time homebuyers can put down as little as 3% with a conventional loan or 3.5% with an FHA loan. Veterans may qualify for a VA loan with 0% down, while eligible homebuyers in rural areas can obtain a USDA loan with 0% down.

Also, you may have heard that you need to pay private mortgage insurance (PMI) if you don’t put down 20%, which is true, but PMI can provide significant benefits such as increased access to homeownership, potential tax deductions, flexible payment options and even slightly better interest rates as mentioned above. PMI is much more affordable now than in the past, especially for first-time homebuyers with incomes below 100% of the area median income.

Additionally, PMI can be cancelled once you have accumulated enough equity in your home. As always, if you have questions regarding these issues— or any other mortgage related items— we are only a click or phone call away!

——Carpe Diem!! — SDE