In a single moment, the fees for most new mortgages in the US have changed. These changes are drastic, both for better and worse.
The changes will apply to any loan guaranteed by one of the agencies, most loans in the US. Examples of loans that won’t change include the following:
- FHA/VA loans
- Certain jumbo loans
- Specialty products
- Non-conforming loans
All which the agencies do not guarantee.
These changes will take effect on loans guaranteed by the agencies starting May 1st, 2023. This means lenders will begin implementing the changes in March or April.
One of the most notable changes is the lowering of the penalty for having a credit score under 680. It still costs more to have a lower score, but the new structure is more affordable than before. For example, if you have a credit score of 659 and borrow 75% of the home’s value, you will pay a fee equal to 1.5% of the loan balance. While before the changes, you would have paid a fee of 2.75%. On a hypothetical $500k loan, that’s a difference of $6,250 in closing costs.
Yet, for borrowers with higher credit scores, things have gotten worse. Borrowers will generally be paying more than they were under the previous structure. The chart below shows the differences between the old and new structures. You can see that green and yellow cells state that things have become more affordable. In contrast, orange and red cells have become more expensive.
Another major change introduced is a new charge for Debt-to-Income (DTI) ratio. This is a controversial change. Income calculations can be subjective. Debt calculations can be “tweaked” with advanced planning and debt consolidation. Nonetheless, every loan guaranteed by the agencies will have a DTI attached to it. If yours is over 40% and you’re borrowing more than 60% of your home’s value, you’ll be paying more.
There are also several other changes, including the following:
- New credit score bands at 760+ and 780+
- 2-4 unit property fees
- A new generic LLPA for “subordinate financing” (a 2nd loan or HELOC)
- Big increases in fees for many “Cash-Out” loans
If you have a loan in process or soon will, these changes won’t apply to you. Most lenders won’t put them in place immediately. Ask your lender for clarification if you have any questions.