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LLPA Changes Official as of May 1st

In Buyers, Homeowners, Sellers by Doug Phelps

Back in March, I started to explain the pending LLPA (loan level price adjustment) structure changes.  The release of the new structure had been delayed but it is official as of May 1st across the country, including here in Colorado. There is still some confusion around the new LLPA structure and I want to help to lessen any concerns or confusion around it. There are a lot of thoughts from both sides and there are both those who are critical of it and those who support it so I’d like to take some time to dispel some common myths around it.

Myth: The new LLPA structure isn’t going to be official until August 1st.

Truth: Some sources had been reporting this change wouldn’t be official until later this year but the change is official as of May 1st. Some lenders have already been implementing the LLPA fee structure updates because of lock periods and loan processes. If you have a loan written after May 1st, expect for this fee structure to be active.

Myth: More qualified buyers are going to be “penalized” by the new LLPA structure.

Truth: This is probably the biggest controversy of this change, and it’s not even completely true. The LLPA structure takes into account multiple facets of a loan and a buyer’s financial situation including credit score, down payment and LTV (loan-to-value) ratio. For the LLPA in general, prices across the board are rising for all buyers and low credit scores will still be paying more than buyers with higher credit scores. The penalty for a lower credit score will just be less than it has been in the past but that doesn’t imply that those who have better credit scores are being penalized. The main goal of the changes are to help buyers who have lower credit scores to qualify for a low by getting them to pay LLPA points to obtain it. 

As an example, according to USA Today, for a low credit score of around 660 a 25% down payment on a home, this buyer may pay fees of 1.5% of the loan balance. Whereas before, it would be 2.75%. This is a lower fee but a fee still applies. For the same down payment and home price, but with a buyer who has a higher credit score of 740 the fee would be much lower at 0.37% of the home’s value. Whereas before the LLPA fee changes, the fee on the loan would have been 0.25%. Higher than before, but still a lower fee than a buyer with low credit.

Myth: The LLPA fees are hidden and buyers won’t know their fees until last minute

Truth: Taking into consideration the Matrix pictured below. It shows the changes in LLPA fees. These fees are set and will be quoted along with all the other fees prior to closing. These fees aren’t hidden and buyers can always reach out to their lender prior to closing to understand the exact amount. The bottom line still is buyers with higher credit scores and lower LTVs will have lower LLPA fees.

The release of the new LLPA structure had been delayed but it is official as of May 1st across the country, including here in Colorado.

Myth: The LLPA fee structure is a recurring fee.

Truth: This is a one-time fee that happens at origination and will not be a recurrent fee, unless you’re buying multiple homes.

Myth: The LLPA fee structure applies to all loan types.

Truth: Another very common myth, this fee structure adjustment only applies to conventional loan types. Remember, there are 4 main loan types. For conventional loans, there are 2 types of loans including fixed rate and ARM (adjustable rate mortgage) and they can apply for different time frames like: 15 year or 30 year. If you’re not sure what loan type you have, you can always double check with your lender. Having this revised structure in place could give a boost to FHA loan programs.

What do you think about the new LLPA fee structure? Are you in the market to buy or sell your home?  Call and text me at (720) 323-4176 or email me at [email protected]

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