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If you have been following the news, you have probably heard about the new mortgage tax on borrowers with high credit scores. The tax has been making headlines for some time now, and it has finally gone into effect as of today. This new tax is known as Loan Level Price Adjustments (LLPAs), and it affects both FHA and conventional mortgages.
Understanding Loan Level Price Adjustments (LLPAs)
Loan Level Price Adjustments happen periodically, and the FHA adjusts them to help more people get into homeownership. However, the new adjustment has caused an uproar among borrowers with high credit scores. According to the National Association of Realtors, they are urging FHA to eliminate the fee increase on strong credit borrowers.
It’s important to note that the lenders didn’t wait until today to implement these changes. Most lenders started making the changes in January, so for most borrowers, this is old news. However, some lenders still have to implement the changes, and it’s essential to know how it will affect you.
How the Tax Affects Borrowers with Higher Credit Scores
For most borrowers, the changes will be negligible. However, for those with higher credit scores, they will see an increase in their rates. The new tax is based on how much money borrowers put down, and the changes are as follows:
- For those with 15% to 20% down payment, the rate went up 75 basis points.
- For those with higher credit scores, they will see a reduction from their previous rate.
However, borrowers with a credit score of less than 639 will still have the highest rates. It’s important to note that no one with a higher credit score will be paying more than someone with a lower credit score.
Pros and Cons of the New Mortgage Tax
There are both pros and cons to the new mortgage tax. The FHA’s goal is to help more people get into homeownership, and this is one of their plans to do it. However, many people in the industry believe that it’s unfair for better credit borrowers to subsidize those with lower credit scores.
The National Association of Realtors has stated that the changes made in the adjustment have moved some fees around and made things a little better for folks who may not have a good credit score. However, for borrowers with higher credit scores, they will see an increase in their rates.
In conclusion, the FHA’s goal is to help more people get into homeownership, and this new mortgage tax is one of their plans to do so. However, many people in the industry believe that it’s unfair for better credit borrowers to subsidize those with lower credit scores. Regardless, it’s important to know how the new tax will affect you if you’re looking to get a mortgage.