Mortgage fees going up for some, down for others
The fees that come with buying a house are changing and not everyone thinks it’s fair. Some with better credit scores will pay more, while some with lower credit scores will pay less.
The changes meant to help more people become homeowners. And while having a good credit score will still get you the best rate on a mortgage, changes that have begun to take effect over the last two months have narrowed the fee gap between the top and bottom of the credit score spectrum.
Dennis Britt, of Fayetteville, reached out to WRAL, frustrated by the changes happening to mortgages.
"Another surrogate taxation that our government is putting out there," Britt said during a Zoom interview with 5 On Your Side.
The Air Force Veteran believes people who have worked hard to earn higher credit scores are being asked to subsidize borrowers with lower credit scores.
"It still comes out of the pocket of working people," he said.
And that is a way to look at it, people with higher credit scores are generally being asked to pay more while people with lower scores are generally being asked to pay less.
There is another way to look at it: "The penalty for a low credit score is less than it was before," explained Michael Martin, a Manager with Fairway Independent Mortgage Corporation in North Raleigh.
Fees are going up or down depending on a person’s credit score and the size of their down payment. The changes were announced earlier in 2023 by the Federal Housing Finance Agency.
"Folks in the 720-740 credit score with 20% down are actually affected the most negatively compared to where it was," Martin explained. "The disparity [between fees] before was significantly larger than it is now, so what they’ve done is narrowed that."
Martin explained this change will help more people on the lower end of the credit score range upgrade from government-backed FHA loans, to conventional loans.
That matters for a few reasons. For example: mortgage insurance. On a FHA loan, Martin explained you have to pay mortgage insurance for the entire life of the loan. However, with a conventional loan, that extra cost goes away when you have 20%-25% equity in your home.
"It could absolutely cause more harm, just like the last last housing collapse in 2008," Britt worries.
There are concerns this could mean more risky loans are approved. Martin says from his perspective, this is different than 15 years ago.
"2006-2007, then all we had to do was fog up a mirror and we’d get you a loan," Martin joked. "Really, every loan we do today we are determining whether you can make that payment."
These extra costs can be paid up-front at closing, or they can be spread out and added to your monthly mortgage payment. The bottom line: you’re still going to get the best rates with a good credit score and you should talk about it with an experienced loan officer.
These changes only affect loans backed by Fannie Mae and Freddie Mac. And even though this rule technically takes effect May 1, it will affect most loans that originated in March and April.
Source: WRAL News
