It will no longer be easy to tell if a borrower should get a FHA or a conventional loan now that Fannie Mae and Freddie Mac are raising their loan-level price adjustment fees.
With a 5% downpayment, FHA loans might “look more attractive for borrowers with certain credit scores,” according to Brian Koss, executive vice president for loan production at Mortgage Network.
FHA was generally considered more expensive because of its high upfront fees and its 1.35% annual premium.
But starting in March, the GSEs are raising their LLPA fees on borrowers with credit scores above 660 and a downpayment of less than 30%.
Creditworthy borrowers in the 680 to 760 range that are making a 5% to 10% downpayment could end up paying an interest rate that is three-eighths of a percent higher.
The mortgage insurance premiums made Federal Housing Administration loans more expensive than GSE loans. But the “LLPA increases negate that,” Koss said.
He stressed that loan officers will have to do spread sheet to price out whether a FHA or GSE loan is better a deal for the borrower.
Mortgage Network is based in Danvers, Mass.