LLPA or "Loan Level Price Adjustments" are adjustments that Fannie Mae and Freddie Mac (or any lender for that matter) may levy against a borrower contingent upon certain conditions being met. What that means is that Fannie & Freddie can take the base rate that is determined by the current market conditions and add hits or upward adjustments to the interest rate if certain conditions are met.

The most recent LLPA that we have to worry about are FICO_LTV adjustments. Fannie and Freddie have just implemented some fairly new LLPA;s which really show how much trouble we are in. I remember not too long back when a 680 credit score could've gotten you all the real estate financing that you could possibly need, and rightfully so. If your credit score is 680 then chances are that you make all of your payments on time and you may have a hit here or there somewhere in your credit history, but that you certainly would not default on the biggest (or one of the biggest) investments of your life.

Past credit performance is a good indication of future performance in most cases (exception to every rule). So it does not make sense that there are so many restrictions now-a-days for people whose credit has not changed. The masses are being punished for the transgressions of a few.

Back to those LLPA; Fannie and Freddie just implemented some new LLPA's that affect a good majority of people who are involved in financing real estate. Now, if your credit score is below 720 and you are financing more than 60% of the homes value you will be hit with several LLPA's that will cause you to have a higher interest rate.

I am currently working with a couple; Both of their credit scores are decent but one of them falls just below that "yellow line". If I were to keep the original loan with both of them on it, their rate would increase almost a whole point of interest which in this case is an additional $117.00 per month. That is a huge increase in payment when you are purchasing a new home for the very first time and are a little "nervous" about all of the newly added expenses in the first place. My solution was to take the borrower with the lower credit score off of the loan and lock in the lower rate and make sure that the other party is added to title.

What I did for the people mentioned above will not work for everyone. Sometimes both people are under 720 and sometimes both incomes are needed for approval. Still, rates are low enough that I still consider conventional financing a better option than most government back loan programs, but the margin is getting slimmer and slimmer. I will be sure to add updates to this information. Check back frequently as the market is very volatile and you never know when something drastic may change.


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Thanks for reading and stay tuned!