If you're looking at buying a home in the next couple months and using
a conventional loan, interest rates are about to get really weird.
Alright?
So there's gonna be a new change to interest rates coming up in May 1st.
So this change is likely going to end up taking effect a couple months before
that, somewhere in the March, April range.
So what's ending up happening here is conventional loans have this thing
called Loan Level Price Adjustments.
And this is something that you as a home buyer will usually never
see or interact with, but this is what impacts your interest rate.
So on here, these numbers do not reflect the interest rate.
They're what's called an adjustment basically for about every 0.5%.
Change in adjustment is about a 0.25% change in interest rate.
conventional loans the interest rates are based off of your down
payment and your credit score.
Primarily that's what is the, like risk of the loan.
Okay?
So the theoretically, the more money you put down, the higher credit score
you have, the less risky your loan is.
So what's changing coming in May?
Is you can see here in the red, this is where rates are gonna
start increasing for people.
And in the green, this is where they're going to start decreasing.
So there's this change that's going, that people are not super happy about.
Because what's happening is you can see someone who's putting 20% down an 80%
loans value ratio with a 720 score is going to have a higher interest rate.
That change is now.
To be made compared to what the interest rate would have been now.
Okay, so in may interest rates are going to increase then for someone
who puts 20% down with a 720 credit.
Same thing with a 740 credit score compared to somebody who's putting
5% down and has a 740 credit score.
Interest rates are actually going to get lower here in May.
And so there's a lot of people who are not very happy with this at all.
In fact here's a quote.
From an article where it says, some loan officers described it as
robbing Peter to pay Paul lower risk.
Borrowers with a high credit scores and larger down payments are now going to
be penalized and essentially forced to subsidize borrowers who haven't saved
money and are actually much higher risk.
How on earth is it fair?
A buyer who diligently saves to make home ownership possible, will now be
forced to compensate for the buyer who blows his paycheck and doesn't save
more than the bare minimum necessary.
That's a little bit of a new exaggeration, but I get the point.
They're saying buyers should be rewarded for the responsible
financial behavior, not harmed by him.
Okay.
And I do wanna address this what this change looks like and
some solutions to it as well.
Okay.
So really quickly, I wanted to show you some of the differences here.
I made this really quick chart just to illustrate what these
changes actually look like.
So these are the old Loan Level Price Adjustments or the
ones that are current today.
And this is what the new one is going to be in May 1st.
Okay.
So what's ending up happening here is you can see in the red.
Basically people who were more, who had a higher interest rate were
people who had lower credit scores and were putting less money down.
And you can see that's actually lightened up a little bit.
Where now Fannie Mae, Freddie Mac on all conventional loans are
favoring people who are putting have higher credit scores, but primarily
have higher down payments in here.
Okay?
And so what I'm gonna do is actually help you with a strategy and a
future video called Rate Hacking.
And in this, what you can do actually is if you were looking at
doing 20% down, for instance, okay, maybe you had a 700 credit score.
Instead of being charged the 1.375% and adjustment, we can actually do 3% down.
To lower the interest rate, and then you can put the other
17% on the first payment.
And I'll help walk you through that strategy in a future video.
I just wanna communicate these changes that are happening here.
Another change that's being made as well is that if we actually go into the Loan
Level Price Adjustment chart, this is the back end for interest rate pricing.
There's also going to be adjustments added to different scenarios, and again,
remember these are adjustments then affect the interest rate roughly 0.5%.
Adjustment changes the interest rate by about 0.25%.
So for instance, if you have a debt-to-income ratio above 40%,
You're going to see a hit to your interest rate because of
that, based on your down payment.
And this is going to affect when you're shopping for a loan because most of the
time a lender doesn't know what your debt to income ratio is when they quote you
a rate because it didn't matter before.
Now, once this change goes into effect, it's very likely that you'll have to
submit a full application to a lender to be able to get an actually accurate.
Quote from a lender.
And here's a loan officer who said it'll be nearly impossible to quote an accurate
rate unless your borrower has completed a full application and their numbers
have been run on a specific property.
He said, this will also make it difficult for consumers to shop for
a rate as the rates they see online will typically be for borrowers that
fit the cookie cutter financing box, which many borrowers rarely meet.
Okay, so just a quick recap here.
These are the adjustments here that do impact your interest rate.
And so it is just important to be mindful of some of these
changes that are gonna come.
Again, the change is technically happening in the beginning of May, but it's likely
we'll see lenders starting to implement these closer to around March or April.
So a couple changes here as well as there's a 70% down category that
was added which is very interesting.
Also, two new credit score brackets have been added.
It used to be that the top of the chart on loan level price adjustments was 740.
This used to be the top of the chart.
If we go back to the previous chart C 740 was the top.
Now, what got added is there's now a 760 bracket and a 780 bracket.
So basically 780 is the top of the chart.
If you have an 800 score, you're not going to get a better interest rate.
But by looking through this chart, you'll be able to start to see, okay, maybe if
I have a 780 credit score, I can actually find the down payment that has the lowest
Loan Level Price Adjustment and see if that's a better down payment strategy.
And then I can put the remainder of my down payment on the first payment to lock
in that lower interest rate, but still put the same amount of money effectively down.
Okay.
Also they removed the 20% down trick.
There used to be this trick where you could put 19.9% down, get a
lower interest rate than 20% down.
So you'd do 19.9% down and put the remainder 0.1% down on the first payment
to get you to 20% to remove the PMI, but you still locked in a lower interest
rate that doesn't exist anymore.
Unfortunately, overall though, fees are lower from a 3.5% adjustment peak
down to a 2.875% adjustment peak.
Also there is that that's an income ratio adjustment in there as well.
So mortgage shopping is going to get strange.
I think there's gonna be a lot of mislead.
Interest rates online because people are going to just immediately show
you a rate that doesn't have a debt-to-income ratio adjustment on it.
And it's going to look like to get the best, most accurate rate you're going to
have to apply with a lender to actually make sure you're getting a correct rate.
Not to mention, there's also adjustments on if you're getting
adjustable rate mortgage, you're gonna have a higher interest.
If you're putting let's see, less than 15% down.
So anywhere, 90 to 95 LTV, which is gonna be five to 10% down.
If you're looking at a condo, you're gonna have a higher interest rate.
If you're looking at investment property second home, these
changes were already in place.
But quite a significantly higher interest rate.
If you're an investment or second home.
Manufactured home, it's gonna be slightly higher, two to four
unit home, slightly higher.
And then a high balance fixed-rate and ARMS higher as well.
So things are going to get a little strange.
Now, one thing you have to keep in mind here is that there's a
waiver to make all this go away,
Okay?
There is one thing that you can qualify for that waves every single
one of these waivers and will give you a lower interest rate.
And it's right here.
It's called a Loan Level Price Adjustment waiver.
Okay? Again, only for conventional loans.
There's two ways that you can qualify for this waiver.
And if you qualify for this waiver, you will not have to worry about any of these
adjustments about DTI, about second homes.
And you won't have to worry about any of the Loan Level Price Adjustments
based on, credit score and down payment.
So the way that you qualify for those is either with a HomeReady or Home
Possible loan through Freddie Mac.
And the way to do that is to be under 80% of the area median income, or if
you're a first-time home buyer with a qualifying income at a hundred
percent of the area median income or lower, or 120% in high cost areas.
So what we can do is go to Fannie Mae HomeReady lookup.
and it's gonna give us a map here.
We want the Area Median Lookup tool.
And what you can do is just go to, let's say we wanna look, I don't
know, right here randomly in Georgia, I can see 80% of the Area Median
Income would qualify for HomeReady.
So if you're under, or if you're at $51,000 annual income or lower
than you'd qualify a HomeReady.
If that's not the case, then if you're under 64,100.
And your first time home buyer, then you would qualify if this
was a high cost of living area.
Let's say we're looking at closer to somewhere like Nashville.
Let me find, if I can search this in here.
See it where it says high cost area than 120%.
Would allow you to qualify for those Loan Level Price Adjustment waivers.
I know this can be confusing and complex.
Ultimately this is stuff that you're not really going to see.
This is all happens on the back end, but I just wanna share this
with you so you're aware of it.
And I'm gonna be introducing again, a new strategy that I'm just gonna call
rate hacking, where we can basically take a look through these charts and
figure out how can we get you the best possible rate through these charts.
So let's just use the information.
Your advantage and then show you how you can apply the rest of
that money to your first payment.
That way you can take advantage of the rate savings and use this the best to
your advantage that you possibly can instead of just going with whatever
rate you saw in the first place.
Okay.
My team and I would love to help you.
We're licensed in all 50 states.
You can go to WintheHouseYouLove.com we do free home loan consults upfront that way
we can answer any questions that you have, walk through your scenario, and then take
you through a pre-approval so you can see all your decision making numbers upfront.
Again, it's at WintheHouseYouLove.com and we'd love to help.