Anytime there’s a big policy change that affects your bank account, we want to tell you about it! Last week the White House passed a new home mortgage plan that’s bad news for financially responsible homeowners and buyers. This new policy could raise your mortgage and cost you thousands over your entire loan term!
So, what’s happening? I’ve got the details for you below, so you can determine if it’ll affect you and how. That way, you can make a plan to cover the extra cost. Here’s what’s happening with Biden’s new home mortgage plan:
How Will Biden’s New Home Mortgage Policy Affect You?
What is the White House’s New Home Mortgage Plan?
The new home mortgage plan is meant to help first-time home buyers with poor credit and a low down payment buy a home. To do that, the federal government will increase the mortgage by over $60 a month for those with good credit and larger down payments. That’s right! They’re penalizing those who are fiscally responsible to “help” people who’ve had bad financial habits.
I caution to say “help,” because locking broke people with low payments and low credit scores into a 30-year mortgage won’t help them! It’ll make them even more broke! Even with the loan-level pricing adjustment (LLPA), the burden of a mortgage in an unstable financial situation is totally crippling. And, it’s even worse that this is being done at the expense of responsible home buyers!
What is Loan-Level Pricing Adjustment?
Loan-level pricing adjustment (LLPA) just refers to a change in the price of a loan to reduce the risk to the lender. This specific loan-level pricing adjustment, however, isn’t an across-the-board change, as I’ve expressed. Instead, the lenders are protecting themselves from the high-risk buyers by increasing the loan fees on dependable borrowers.
The new policy measures whether a person will get a loan increase or loan assistance based on their credit scores, the loan-to-value ratio, their debt-to-income ratio, the loan’s purpose, the occupancy number, and the mortgage type.
Who Will Be Affected?
The people that will be affected negatively are those with a 720 credit score or higher with 15%+ down on a mortgage term longer than 30 years. You’ll pay an additional $60 a month on your mortgage every month! However, those with 640 credit scores or lower with around 3.5% down will get a significant decrease in payments.
I know what you’re thinking: This doesn’t seem fair? You’re right! It’s not. This truthfully, doesn’t help anyone. It hurts everyone and the economy. However, if you follow the Ramsey method, you’ve probably noticed I’m talking a lot more about credit scores and 30-year mortgages than usual. What if you don’t have those? Let’s discuss:
What if You Don’t Have a Credit Score?
Though we don’t have all the information yet, it seems like those without a credit score won’t see a jump in mortgage rates. Woo! Another win for any of you following my financial advice. (If you’re new, I do not recommend even owning a credit card.) Of course, it takes years of being debt free to eliminate your credit score. So, if you still have one but are working on getting rid of it, brace yourself for the increase.
Of course, that’s all assuming you already have a house or plan to buy one soon. If you want to wait until your credit score is negated to buy a home, you won’t see the same penalties applied to your loan. However, there’s a better way to avoid these fees:
How Can I Avoid Paying Extra on My Home Mortgage?
The best way to avoid paying the extra fees is to only get a 15-year mortgage term. We already love 15-year fixed-rate mortgages because you pay less interest, build equity faster, and get debt free more quickly! And, now, under this new policy, you’ll avoid these higher loan fees! So, if you’re looking to buy a home, ensure you’re looking at a 15-year fixed-rate mortgage. (To better understand the types of mortgages, check out this post.)
Biden’s new home mortgage plan will penalize borrowers with a good down payment and good credit score.
The White House’s new policy has good intentions, but big consequences for undeserving borrowers. You’ve worked hard for what you’ve got, and you shouldn’t be forced to pay someone else’s way too. If you haven’t bought a house yet, ensure you get one with a 15-year fixed-rate mortgage. But, if you already live in your 30-year home and have a 720+ credit score, you may have to adjust your budget—your mortgage is going up!
For more financial news and money tips, check out my blog. There, I have all sorts of information on how to get your financial house in order and begin winning with money. And, if you want a more direct way to launch yourself to success, join me for a free coaching session. I help people everyday overcome their money hurdles and find peace.