If you’re planning to apply for a conventional mortgage for your home purchase or refinance, you should be aware of some changes that are coming your way. As of May, the Federal Housing Finance Agency has updated its pricing framework, which will affect the upfront fees for conventional loans.
Closing costs are inevitable when it comes to the mortgage process, but the changes may lead to an increase in costs for some borrowers. In this article, we’ll break down the changes and how they could impact you.
Higher-Credit Borrowers May See More Variance in Fees
Previously, borrowers with a credit score above 740 were charged the same price. However, under the new pricing framework, fees will vary for borrowers with scores between 750-759, 760-779, and 780 or higher. If you have a high credit score, you might need to pay more upfront fees than you would have previously.
Lower-Credit Borrowers Won’t Be Penalized as Harshly
Under the old pricing arrangement, borrowers with a score of 639 or lower paid fees as high as 3.75%. The new arrangement reduces the maximum fee to 2.875%, which is good news for borrowers with lower credit scores.
Cash-Out Refinancing May Get More Expensive
Previously, the highest fee for cash-out refinances was 2.125%. However, the new pricing model has increased this fee to more than 5% for some borrowers. If you’re planning to refinance and take out cash, the new fees may make it more expensive.
Buying a Multi-Unit Property Might Be Cheaper
The fees for purchasing a two- to four-unit property range from 0.0375% to 0.625% under the new pricing model. Previously, the fees were 1% across the board, which made buying a multi-unit property more expensive. If you’re considering purchasing a multi-unit property, the new fees may work in your favor.
If you’re planning to apply for a conventional mortgage soon, keep in mind that the upfront fees may be changing in May. The fees will vary depending on the size of your loan, credit score, and down payment. While the changes may result in increased costs for some borrowers, they may also make purchasing a multi-unit property more affordable. If you’re unsure about the fees, don’t hesitate to reach out to a mortgage professional who can help you understand the costs associated with your loan.