What is a loan level price adjustment (LLPA)?
This has become one of the more frequently asked questions for mortgages in today’s lending environment. Conventional loans carry loan level price adjustments. Fannie Mae and Freddie Mac both have a matrix that charge an adjustment based on credit score and loan to value.
A few examples, using Fannie Mae LLPA’s for reference:
- 740 FICO, 5% down: 0.00% adjustment
- 700 FICO, 20% down: 0.75% adjustment
- 699 FICO, 20% down: 1.50% adjustment
This would mean that a $100,000 loan would carry a $0, $750, or $1500 additional fee. Because this is derived from a matrix, there are spots where the adjustments are particularly punitive.
Who is hurt most by LLPA’s?
At the same loan to value, people with 720+ credit are all treated roughly the same. A 700 FICO used to be good enough to usually see top tier rates. Now, a 719 FICO versus a 720 FICO means .5% fee on most loans.
On a $200,000 loan, there is a $1,000 fee for that 1 point. Think there’s a credit crunch?
The band from 680-699 FICO is significantly more penalized than the 700 FICO. For the 699 v. 700, there is an extra fee that varies between .25%-.75% or an extra fee of $500-$1,500.
The gap between a 699 FICO and a 720 FICO compounds matters. For a gap of just 21 points on credit score, the loan would have a $3,000 fee or almost $150 per FICO point!
How to avoid loan level price adjustments?
This is a major problem. For people with 740 FICO, you can stop reading.
Credit scores are in groups of 20 points, 660-679, 680-699, 700-719, etc. If you are within 10 points of the “next group,” contact us. We have a tool that will analyze your credit and see what steps can be taken and estimate how many points we can gain.
We have done this for years to make home ownership possible for many clients. Today’s version of credit repair is more about optimization. For example, some people can save $3,000 in fees by simply paying down a credit card a few hundred dollars. It can be a huge win and a great investment of your time.