Hey, heads up folks! The Biden administration just announced that starting May 1st, 2023, they’re gonna be introducing new mortgage fees. Basically, this is their attempt to tackle the increasing costs of homeownership and make it more obtainable for Americans to buy homes.
Now, I don’t know about you, but when I think of mortgages, the first thing that comes to mind is pure excitement and joy. Just kidding, I immediately think of the overwhelming amount of debt that I’m going to be in for the next 30 years of my life. The rest of the article will break down the changes, how this affects certain homebuyers and the potential side effects.
What Are the New Mortgage Fee Changes?
The mortgage fee changes that are taking place May 1st are designed to make it easier for people with lower credit scores to get mortgages. These changes have lowered fees for those with a credit score of 659 or lower, while increasing fees for those with a score of 740 or higher.
Specifically, if you have a score of 659 or lower and are borrowing 75% of the home’s value, you’ll pay a fee equal to 1.5% of the loan balance. This is down from the 2.75% fee that would have been paid before May 1. On the other hand, if you have a credit score of 740 or higher, you could pay as much as 0.375%, which is up from the 0.25% fee that was in place before.
Overall, these changes are intended to make it easier for people with lower credit scores to get mortgages, as well as help them save money in closing costs. However, those with higher credit scores may end up paying more in fees than before.
Who Will be Affected by the New Mortgage Fees
The new mortgage fees will primarily affect borrowers who are seeking to buy a home. Specifically, the Federal Housing Finance Agency (FHFA) will be charging a 0.5% fee on all refinance loans purchased by Fannie Mae and Freddie Mac. This fee is intended to offset some of the risks associated with these loans and to help cover the costs of providing support to struggling homeowners.
The FHFA has indicated that the new fee will be applied to all loans with terms greater than 15 years and loan balances less than $300,000. Borrowers with higher loan balances will be exempt from the fee, as will those who are refinancing into shorter-term mortgages, such as 10-year or 15-year loans.
Higher Fee for Higher Credit Scores:
Homebuyers with high credit scores may soon be subject to increased mortgage fees due to new regulations from Fannie Mae and Freddie Mac. Those who are putting down 15%-20% of their initial payment as a downpayment will feel the biggest brunt of this fee, as it will increase by roughly 0.25 percentage points for each rate applied long-term.
Also, those who have a credit score of 680 or higher may only see a small increase in their monthly mortgage payments, depending on how large their loan is.
Lower Fees for Lower Credit Scores
For homebuyers with lower credit scores, the new mortgage fees may be a blessing in disguise. The Biden rule seeks to provide relief to those with a credit score of 500-680 by reducing their loan-level price adjustments by 0.75 percentage points when their down payment is 20%. This reduction in fees makes homeownership more accessible to those with lower credit scores who would otherwise have struggled to secure a mortgage loan.
The Potential Mortgage Fee Concerns
While it’s great to make it easier for people to buy homes, it can be seen as unfair to those who have put in the hard work and effort to achieve financial stability. People who have saved and and planned for years to buy a house now will be battling it out with a lot more competition.
Another big concern is how the new fee could affect credit scores. If borrowers are unable to afford the extra fee and end up missing payments, their credit score will likely suffer as a result. This could make it more difficult for them to qualify for a loan in the future. In addition, those who are already struggling financially might not be able to take advantage of the lower interest rates that could come with refinancing. The fees may also lead to increased competition among lenders, resulting in fewer loan options available to borrowers.
The Potential Mortgage Fee Benefits
The new policy is set to provide opportunities for people who may have faced financial hardship in the past and not be able to save up enough for a downpayment. By making homeownership more affordable, the policy could help more Americans achieve the dream of owning a home and building equity over time.
The new fee could also benefit those who are not in financial distress. The increased cost of refinancing may encourage borrowers to stay with their current lender and continue making regular payments, which could help improve their credit scores over time. Additionally, the cost of refinancing could give lenders more confidence in approving mortgages, leading to more qualified buyers who are better able to make mortgage payments in the long term.
Will There be Any More Changes?
The mortgage fee changes don’t stop with the FHFA. Many lenders have their own set of fees, and some of these could be affected by the FHFA’s changes. For example, many lenders have an origination fee, which is typically a percentage of the loan amount. This fee could go up in response to the FHFA’s new fees.
It’s also possible that lenders will respond to the changes by introducing new fees. There are a number of ways that this could happen, such as introducing fees for mortgage refinancing or charging borrowers for having high DTI ratios.
It’s still too early to say for sure what other changes lenders may make in response to the FHFA’s mortgage fee changes. However, it’s important to stay informed and understand how these changes could affect your mortgage application or refinancing process. Keeping track of any additional fees that your lender may introduce can help you prepare financially and make sure that you’re getting the best deal possible.
Only Time Will Tell
The new mortgage fees imposed by Fannie Mae and Freddie Mac are expected to have a considerable impact on the housing market. As these changes are put into practice, it is important to monitor how they will affect individuals seeking to purchase a home.
While these changes could potentially lead to increased stability in the mortgage market, it is also possible that certain groups of borrowers may find it more difficult to obtain financing. Ultimately, only time will tell if these amendments result in positive or negative outcomes for the housing industry.