Winter Haven, Florida mortgage rates might be falling, but the costs of financing your Florida home are rising. To understand why, we need to talk a little about conforming versus non-conforming loans.
See, conforming loans are loans written according to strict guidelines and borrowers need to have, among other things, good credit and verifiable income. Non-conforming loans take us a bit closer to the "sub-prime" loans we've been hearing so much about... those loans that, in many cases, should never have been made in the first place.
Well, the massive onslaught of homes financed with non-conforming loans has been all over the press, and many a bank has tanked as a result of investing in mortgage baked securities comprised of these little stinkers. However, starting in late-2007, Fannie Mae began to see a rise in mortgage defaults for conforming loans - which are typically a little less riskier than their non-conforming cousins. This caused Fannie to start "covering theirs," so to speak, by creating a loss-mitigating, fee-generating scheme that employs what Fannie calls "Loan-level Pricing Adjustments."
How Do These Loan-Level Pricing Adjustments Work?
The concept for these loan-level pricing adjustments is pretty simple: Collect up-front payments to offset potential long-term losses suffered from lending to borrowers with "high risk" profiles. Now, at first blush, this concept did make a little bit of sense.
Similar to the auto insurance model in which younger drivers pay higher premiums, the riskier the applicant, the higher the fee. At the inception of the program, Fannie Mae defined "risk" as a combination of borrower credit score and home equity percentage.
In general, if you had a lower than average FICO score say, below 600, and you were putting next to nothing down on your home (which meant you had a higher Loan to Value or LTV ratio), you paid a higher adjustment fee. However, come April 1, 2009 - Fannie Mae's definition of "risk" will expand... a lot!
Fannie Mae's new loan-level fees now impact any conforming mortgage that meets any of the following criteria, with the exception of fixed rate loans of 15 years or less. Note, fee percentages represent that percentage multiplied by the total loan amount. We'll use $200,000.00 as a round number example.
- Up to 0.75% fee: Secured by a condo/co-op with less than 25% equity FEE TOTAL: Up to $1,500
- Up to 0.50% fee: Features a junior mortgage (i.e. HELOC, HELOAN) FEE TOTAL: Up to $1,000
- Up to 1.00% fee: Features interest only payment options FEE TOTAL: Up to $2,000
- Up to 1.00% fee: Secured to a 2-unit property FEE TOTAL: Up to $2,000
- Up to 3.00% fee: Is designated as "cash out" FEE TOTAL: Up to $6,000 O-U-C-H!
Each 1 percent in fees equals 1 percent of the borrowed amount, and one percentage total piggybacks onto another if the situation applies. For example, say a condo buyer moves forward on a $270,000 property putting 20% down ($54,000) and paying the balance of $216,000 by using a $200,000 first mortgage and a $16,000 line of credit. Because they will have less than 25% equity (bullet point one above = .75% FEE) in their condo and are using a junior mortgage (bullet point two above = .50% FEE), they will be subject to a mandatory 1.25% charge (.75% + .50%) on their first mortgage (the Fannie Mae Funded part) of $2,500, due at closing.
Now - I understand that it would be the rare case today that the above example would actually happen, in terms of the $16,000 HELOC coming into play, but it does provide a little bit of an example of what could happen under these new guidelines. And, just when you thought we were done... there's more!
Fannie Mae has also adjusted its original FICO-LTV matrix so that nearly every Winter Haven, Florida home loan applicant -- regardless of credit score -- will be looking at higher closing costs. Yes - you read correctly. Now even well-intended, well-qualified borrowers get to pay into the pot! But, not until April 1, 2009.
Folks, I'm not a high pressure guy. What I am is a realist.
Fannie Mae's latest announcement represents the fifth such risk-based pricing update in just over a year - 15 months, to be exact - and I'm pretty sure it won't be their last.
If you have blisters from riding the fence regarding when to pull the trigger and move ahead with your Winter Haven real estate purchase, please consider that the cost of waiting much longer may outweigh the perceived benefits of low rates or home prices.
As always, I'm here to answer any questions you have regarding locking in a low, fixed rate today so that you can avoid these higher fees. Give me a call at 863-604-3019 or apply for a Florida home loan online so we can get you set up with a pre-approval letter today.
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Kevin Sandridge
The Florida Home Loan Specialist
Signature Home Funding
410 Laurel Cove Way
Winter Haven, FL 33884
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Mobile: 863-604-3019
Fax: 888-496-0265
kevin.s@sigfunding.com
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great information, thanks for sharing. Will be in your area someitme soon
Dave