The truth regarding interest rate changes for high credit scores
As I’m sure you saw the headlines late last week, there have been some changes to Fannie Mae and Freddie Mac’s mortgage pricing model. This is controlled by the Federal Housing Finance Agency (FHFA) = typically run by political appointees of the current administration in power. As with most news these days, the headlines can be misleading so here is a little information on the changes so you can separate fact from fiction when you get questions from your home buying prospects.
Headline One – Buyers with higher credit scores will pay higher rates than buyers with lower scores. This is FALSE. While the mortgage pricing for higher credit score buyers did increase, their mortgage financing costs will still be lower than buyers with lower scores. Having higher credit scores is still and should always be a positive factor that helps buyers lower the cost of mortgage financing.
Headline Two – Mortgage costs for higher credit score buyers increased. This is TRUE. The loan level pricing adjustment charged to lenders by Fannie Mae and Freddie Mac increased for all borrowers with credit scores of 680 and above while the pricing adjustments for buyers with 680 and below decreased.
Also, it is important to note that these changes have been priced into the market since early April. The changes affect loans delivered to Fannie and Freddie after May 1, 2023, so most of your April home buyers were priced on the new loan level pricing adjustment table.
Real World Example based on $500,000 purchase price with 5% down payment at 5.99% APR - as of April 27, 2023
Changes for Low to Moderate Income Buyers
First time home buyers with low to moderate income will see lower rates on conforming loans. Loan level price adjustments for first time buyers with qualifying income below the area median income levels ($76,200 in Shelby Co TN and DeSoto Co MS) are being waived by Fannie Mae and Freddie Mac.