Mortgage Costs Inch Their Way Up

Spring is upon us! And for some in the Lansdale area, this means the start of finding and buying a new home.

If you’re just beginning to search for a home, you need to know about a new cost that affects everyone applying for a conventional mortgage loan. 

The government-sponsored enterprises Fannie Mae and Freddie Mac are increasing the cost of a loan to offset the risk of lending to borrowers with lower credit scores. 

These increases are called lower level pricing adjustments (LLPA) and adverse market delivery charges (AMDC). This is not entirely new.  LLPAs and AMDCs previously existed for people with a credit score below 700 and then 720, and eventually moved to 740. 

Now, no matter what your credit score is, some percentage of a point will be charged. (A point is equal to 1 percent of the loan amount.) So, a conventional loan will now cost at least .25 percent more. That’s one quarter of one point.  Or, you end up paying a higher interest rate to absorb this charge. 

That may not seem like much, but when calculating what you can borrow, it can mean being approved for several thousand dollars less than before the new charges. 

So, if you’re sitting there with a perfect credit score of 850 and wondering if you will be subjected to this increase, I can tell you now, the answer is yes, you will. 

However, you won’t pay more than .25 percent of a point.  If your credit score is between 700 and 739, you will pay .50 percent (one half of one point). As you can see, it’s important to maintain a higher score or improve your credit score to keep your loan costs down as much as possible.

Another type of mortgage may better fit your needs and budget. You can avoid most of these charges by applying for an FHA loan instead of a conventional loan. 

FHA loans are administered by the U.S. Department of Housing and Urban Development.  FHA still only requires a minimum of 3.5 percent of the purchase price for a down payment. However, it’s not all roses here either. 

On April 18, FHA will put into effect an increase in the annual Mortgage Insurance Premiums, also known as MIP. If you’re honing in on a home that you like and plan to use FHA financing, you might not want to delay making an offer much longer. 

Here’s an example of the before and after costs: The sale price of a home is $200,000. With a down payment of 3.5 percent, the loan amount is $193,000.  The MIP today would be $145 per month. 

After April 18, the MIP will be $185.  That’s a difference of $40 per month that you’d have to budget for.

The key to all this is having a plan in place when it comes time to apply for a loan.  There are things all of us can do to increase our credit scores; there’s more to it than just watching and comparing interest rates.   

I can’t stress enough how important it is to work with a knowledgeable mortgage and real estate professional to help guide you through the ever changing mortgage finance and real estate climates. 

After all, saving money on a monthly basis, whether it is $10 or $50, can ultimately save you thousands over the life of a 30-year mortgage.

For more information on local housing trends, mortgage products or improving your credit score, contact Gina Wherry at 215-256-1200, ext. 322 or visit www.scottloperteam.com.