Low Credit means better mortgage rates?

You read that right! Low credit scores ( below 680) will now get you better mortgage rates and you won't have to put down as much money either.

A new federal rule aimed at promoting affordable housing will cause homebuyers with good credit scores to face higher mortgage rates and fees. Some say, The Biden administration is weakening the U.S. housing market by prioritizing riskier borrowers, not based on traditional credit data, but based on a “politically motivated agenda”.

The rule is designed to subsidize individuals with riskier credit ratings who are also in the market to purchase houses. The fee changes will take effect on May 1 and will apply to mortgages originating from private banks nationwide. Fannie Mae and Freddie Mac, the federally backed home mortgage companies, will implement the loan-level price adjustments (LLPAs).

According to experts in the mortgage industry, individuals with credit scores of 680 or more will face an additional cost of around $40 per month on a $400,000 home loan. Homebuyers who put down between 15% to 20% will face the most substantial fees.

Lenders and real estate agents anticipate that the rule will create dissatisfaction among homebuyers with excellent credit scores and homeowners looking to refinance. The reason is that the regulation penalizes them for their comparatively secure financial positions.

"In the short term, this may increase homeownership among the targeted group, but I'm afraid it could decrease homeownership among the middle class," Jerry Howard, CEO of the National Association of Home Builders, told Newsweek. "I'm not sure that we're not robbing Peter to pay Paul here."

In the long run, it is my opinion that these tweaks to mortgage rates will stifle the housing market and add a layer of complication that home buyers do not want or need. Plus it will have a backlash effect on sellers who have low monthly mortgages and lots of equity who won’t sell therefore leaving buyers with less and less inventory which will jack up home values. 

Bottom line, get under contract now and lock before May 1st or wait and see if this terrible LLPA plan will be retracted since it seems clear both sides of the political pond do not like this plan! If you are looking to buy a home after May 1 and have questions get in touch with me for more insights.