Higher credit scores could soon mean higher mortgage rates

WILMINGTON, NC (WWAY)– A change that many home buyers will find surprising, especially if you have a good credit score. 

“These changes have essentially said that someone with a higher credit score is now going to have a little bit higher of an adjustment, meaning the cost of the loan is a little bit higher. Likewise, someone with a lower credit score might see a little bit less of a cost,” said Joey Milam, a Wilmington Mortgage Lender with Alpha Mortgage.    

The Biden administration revamped the ‘Loan Level Price Adjustment’ fee that will go into effect May 1st.    

The purpose of the change is to help those with a lower credit score obtain a mortgage.   

“It certainly could help affordability with the cost of the loan being a little bit less for someone like that. They very well may get a slightly better interest rate. A slightly better interest rate often time for many people is going to mean an increase in buying power. So, they might be able to buy a little bit more of a home possibly,” said Milam.    

But this does leave those with the higher credit scores effectively underwriting those with low scores. 

“Someone with a higher credit score, let’s say a 740, which is really good, may be paying a little higher of a cost on the loan. It’s really not a huge difference I would say, but it certainly does affect people somewhat with a higher credit score. It does mean that the cost of the loan might be a little bit higher,” said Milam.  

Although the change does not go into effect until May 1st, these rates have already been adjusted, and buyers likely will not notice a difference.   

“The mortgage industry as a whole generally knows these things well in advance. So, the pricing really has already been adjusted. So rates that people were seeing last week, the week before, it’s not going to be different come May 1st, it’s already been taken into account and has kind of already filtered into the market now,” said Milam.    

It’s also important to note these new rules only apply to loans backed by Fannie Mae and Freddie Mac. 

We reached out to several local realtors for comments on how it affects clients, but they declined until they learn more about it in the coming days.