It is spring of 2023 and there are a lot of Bloomfield Hills home buyers who will be impacted by a new set of Loan Level Pricing Adjustments (LLPA) that are hitting the mortgage business right now.
Here is some background: One of the reasons this country has such a great ownership rate is that we generally have low interest rates for home loans. A reason for that is the standardization of loans by some giant pseudo-government entities, primarily FannieMae and FreddieMac.
About 80% of home loans meet standard guidelines, and it allows for simple exchange of loans by institutional investors. Loans that conform to these standards are referred to as “conforming loans”.
Again, this is nearly 80% of home loans.
As you probably know, not everyone gets the same rate when they buy a home. That is because of the LLPA. These adjustments compensate for variations in each loan, the size of the loan, the type of home, what the home is used for, the credit score of the borrowers, the occupancy of the home, and even the location location of the home.
This standardization is normally great. However, when these large groups changes their standards every few years, it impacts a lot of buyers.
The LLPA changes for 2023 are quite significant.
Here are four examples of the negative impacts:
1 Pricing will now be impacted by a buyer’s total Debt To Income ratio. (DTI) If a buyer’s total monthly debt payment is above 40% they will face a pricing hit. There is a lot of concern that this will lead to additional difficulties in getting loans through underwriting, because it is a whole new measurement.?
2 For the last ~30 years if a buyer’s credit score was above 740 they basically had access to the best pricing. The vast majority of buyers in our office have had scores above 740. Now a buyer needs to have a 780 to get to the best pricing level.?
3 Refinancing will reportedly be significantly more expensive than a purchase loan.?
4 There are now situations where it makes sense for a 20% down buyer to actually just use 19% down and pay Private Mortgage Insurance, because of the interaction between downpayment adjustments and Private Mortgage Insurance (PMI) pricing.??
Here are three positives:
1 Pricing for lower credit scores has improved. For example, 640 to 660 scores have reduced penalties.?
2 ?Many 3% down loans have gotten better pricing.
3 There are now situations where the buyers have?qualifying incomes equal to or less than 100% of the area will not be subject to the new adjustments.
A really useful chart of the impacts is here:?https://www.mortgagenewsdaily.com/news/01192023-big-llpa-changes
The bottom line here is that mortgage approval criteria have changed. If you have a preapproval from the first quarter of before, you need to go back to them and get an update.
Thanks for stopping by and good luck with your home purchase.
The Home Buyer’s Agent of Ann Arbor
517 Linden Ln, Ann Arbor, MI 48103