The Truth About High Mortgage Fees for Homebuyers With Good Credit 

The latest news about mortgages isn’t just about increasing rates–now, outlets are reporting higher fees for borrowers with good credit. 

A recent article from Newsweek claims, “Biden Raises Costs for Homebuyers With Good Credit to Help Risky Borrowers.” And CBS News reported that “[c]hanges in the mortgage industry could spell bad news even if you have good credit.”

Is it true? If you have a good to excellent credit score, are you charged higher fees on your new mortgage loan? 

As always, the truth is a bit more complicated than attention-grabbing headlines show. Let’s take a look at the changes made by the Federal Housing Finance Agency (FHFA) and what those really mean for you!

What Are Mortgage Fees?

Loan-Level Price Adjustments (LLPAs) are fees charged by Fannie Mae and Freddie Mac. They are based on loan features including credit score, loan-to-value ratio, occupancy of the property, and the newly-added debt-to-income ratio. These fees are added to your monthly mortgage payments. 

What Is Changing?

Changes to LLPAs are common; in fact, they've been modified several times in the past. This most recent adjustment is easily misinterpreted by borrowers who glance at misleading headlines. 

Many articles imply a new reduction in fees for lower credit borrowers that is then being made up for by an increase in fees to higher credit buyers.

This claim, however, isn’t completely true. 

Historically it cost low-credit score borrowers more to hold a mortgage. While it still costs more to have a lower credit score, the lending agencies have a commitment to promote affordable home ownership. Now, the penalty for having a credit score below 680 is lower than it previously was. 

Why Is This A Big Deal?

It looks like low-credit borrowers are paying less in fees than high-credit borrowers. This is why rumors are swirling that people with high credit should skip a few credit card payments, take a hit to their credit score, and win these lower fees. 

But that’s not the case at all (and is a terrible idea).

According to FHFA Director Sandra Thompson, 

"Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat [....] Some mistakenly assume that the prior pricing framework was somehow perfectly calibrated to risk—despite many years passing since that framework was reviewed comprehensively. The fees associated with a borrower's credit score and down payment will now be better aligned with the expected long-term financial performance of those mortgages relative to their risks."

In other words, from Mortgage News Daily:

“[T]he change amounts to a tweak of an existing fee structure in favor of those with lower credit scores and at the expense of those with higher credit scores, but there's no scenario where someone with lower credit will have a lower fee.”

The primary change is that the gap between low-credit and high-credit borrowers is smaller than it was. 

Yes, some borrowers with high credit scores may pay a small amount more than they did previously. But this increase isn’t necessarily a fee they’ll see right away. Lenders may choose to offer higher interest rates and effectively pay for the increase there. 

The Truth About High Mortgage Fees and Good Credit

Ultimately, the FHFA wants to make it easier for low-income, poor-credit borrowers to own homes. While that does mean some increases in fees for good-credit borrowers, the fees are nominal. 

This is a controversial move, so modifications could come in the future. The best way to keep up with all the latest changes is to sign up for my monthly newsletter. You’ll receive important real estate updates straight to your inbox!