We often hear clients remark, “why are the closing costs more now than when I refinanced just two years ago?” There is a simple explanation. It is due to the “Loan Level Pricing Adjustments” (LLPA) that have been mandated by Fannie Mae. These pricing adjustments are based on the “risk factor” of the loan. The various criteria used to arrive at such a factor are: credit score, loan-to-value, type of loan and type of property. On a $200,000 loan, the LLPAs could vary anywhere from .25% to 3.00% of your loan amount. This equates to $500 to $6000 additional charges simply due to the various “risk” factors determined by Fannie Mae. Please keep in mind, these are NOT charges that are being pocketed by your mortgage loan officer but charges that are being channeled to Fannie Mae through the chosen lender that is underwriting your loan transaction. It is for this reason, that if you should call a local mortgage company and they quote you a rate, the accuracy of that rate should be called into question unless they have thoroughly evaluated your specific loan scenario. It would be similar to calling an auto dealership and asking how much a red car costs. Do you think the auto salesperson on the other end would provide you with a price? The appropriate “pricing adjustments” should be detailed on your Good Faith Estimate. Using the auto analogy, the Good Faith Estimate is actually your “sticker” costs outlining the various costs associated with that particular purchase. An experienced and trusted mortgage professional will thoroughly evaluate your criteria and provide a detailed Good Faith Estimate.
It is always best to discuss your specific mortgage questions with a trusted experienced mortgage professional. As has been outlined, everyone’s situation is now different and the true costs should be noted upfront in the form of an accurate Good Faith Estimate.
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