What is an LLPA?
Loan Level Pricing Adjustments are the pricing adjustments imposed by Fannie Mae and Freddie Mac based on specific loan features, such as credit score, occupancy, and down payment. ‘Pricing’ means a combination of the interest rate and the upfront cost for that interest rate (aka Discount Points).
Which lenders and loan programs does this apply to?
These LLPA changes will apply to any loan guaranteed by Fannie Mae or Freddie Mac, regardless of the lender. These two agencies account for most of the financing in the US for conforming loans. Important note: these changes do not apply to VA, FHA, USDA, Jumbo loans, and other specialty loan products.
When are these changes happening?
The new LLPA’s will take effect May 1st, 2023. These changes will likely be implemented by lenders in March/April.
What is exactly is changing?
Many buyers will benefit from loan level pricing adjustments, but others will find their pricing has worsened. Below is a breakdown of the changes that are taking place. Many of these can be visualized with the heat map below.
- Credit scores play a larger role. The previous FICO credit score tier ≥ 740 will now be split into three separate line items. Buyers now receive pricing improvement if they are at 760+ or even 780+
- Lower credit score buyers see improved pricing (< 680)
- Mid-level credit scores see worse pricing (681-759)
- High credit scores see improved pricing (> 760)
- 2–4-unit properties receive improved pricing – both for owner occupied and investment purchases!
- Larger down payments also receive improved pricing
- Big increases in fees for many “cash-out” refinance loans
- Most significantly, debt-to-income (DTI) ratio will now impact pricing. DTI over 40% will result in higher pricing.
What is the biggest takeaway?
Now more than ever, it is important to work with a lender that offers great communication and guidance on how to optimize your loan structure. A detailed loan application and income document review can help determine your debt-to-income ratio and improve the odds that this is calculated as accurately as possible early in the process. By carefully navigating the world of LLPAs, we can save buyers potentially thousands upfront, and much more than that over time through a lower interest rate and/or lower pricing.
