Good Credit = Higher Rates

Things got more expensive for home buyers with good credit. 

The Government just passed a bill to charge an additional fee for borrowers with good credit... while at the same time, giving a discount to those with less than perfect credit. 

Controversial to say the least...  This is a topic that is gobbling up news headlines throughout the Real Estate industry. 

Let's talk about how this affects you when you're buying your next home. I'm also going to look at another point I don't hear anyone talking about...

There are three major points we'll hit on...

  1. There is a ton of incorrect information out there, so we'll clear that up. 
  2. What is the goal of this?
  3. How will this affect the housing market?

Let's talk about the wrong information first...

A ton of the headlines are telling the wrong story (big surprise).  The Fee structure of a loan is determined by a lot of different things.  One of which is called LLPAs (Loan Level Price Adjustments). 

The current fee structure is not changing. There are no scenarios where someone with a lower credit score will have less fees than someone with good credit. 

What is changing, is that the gap between the fee for good credit and bad credit will narrow.  This means that a better credit score won't save you as much as it would in the past. Bad credit borrowers will have lower fees than they would have before, but not lower than someone with good credit. 

It still pays to have good credit... just not as much when it comes to mortgages. 

Why make this change in the first place?  What is the goal?

The goal is very clear.  It is to promote homeownership to as many people as possible. Adjusting this fee structure will make it more affordable to those who have less than perfect credit.   The hope is that it brings more new home buyers to the market. 

How does this affect the housing market?

I see this as an opportunity to bring more potential home buyers to the housing market. Buyers with less than perfect credit who weren't able to qualify for a mortgage last month, can rethink buying. 

More buyers to the market means there will be more demand for housing, which raises prices.  Now if you're currently buying a home, this might not sound great.  But once you close and are now a homeowner, you'll want to watch your homes value continue to increase over time. 

Mortgages are complex.  I hope this makes a complicated subject a little easier to understand. 

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Overall, this sucks for those who have great credit.  But, promoting homeownership is good for everyone. This is getting blown up in the media with less than accurate information so I hope this video clears up a bit what the government is trying to do. 

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