Home Loans to Get Costlier

Borrowers with Fannie Mae-backed loans will face higher borrowing costs and interest rates, even if they have a perfect credit score, starting on April 1.

The agency is imposing a “loan-level price adjustment” on several mortgages, in which borrowers will be charged more in cost or higher interest rate based on how much down payment — or if they’re refinancing the amount of equity in their home — as well as their credit score, explains mortgage expert Bill Gassett in the Massachusetts Real Estate News.

Prior to the adjustment, a buyer with a 700 credit score and a $160,000 mortgage who was purchasing a $200,000 home may pay an additional $800 in these fees. That cost would now be doubled: The loan’s risk-based pricing would equal $1,600, said Cameron Findlay, chief economist for LendingTree.

Borrowers who don’t have large down payments or who have low credit scores will see higher rates. But even borrowers with good credit scores will have to pay more too.

For example, Gassett explains that a buyer with a credit score over 740 who has a 25 percent or lower down payment will now pay about 0.125 percent more in rate.

For any buyer or refinancers of a condo (excluding detached condos) who have less than a 25 percent down payment will face an increase in rate of nearly 0.5 percent.

“It certainly says that even with a great credit score, they still see some risk in you,” Findlay told The Wall Street Journal.

Some lenders have already started incorporating the higher fees.

Not all loans will be subjected to the fees, experts note. For example, not all lenders sell all mortgages to the secondary market and loans insured by the Federal Housing Administration also will be immune.

Source: “Fannie Mae Mortgage Interest Rates & Costs Rising,” Massachusetts Real Estate News (Jan. 30, 2011) and “Mortgage Fees on the Rise Again,” The Wall Street Journal (Jan. 25, 2011)

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