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How a higher credit score could hurt home buyers after federal changes

The Federal Housing Finance Agency says those with higher credit scores aren't paying more so lower credit scores can pay less.

SAN ANTONIO — New changes at the federal level are set to impact potential home buyers.

The government says the change to upfront mortgage fees will help buyers limited by income or wealth. But, one expert says, it also means a higher cost to people with better credit.

The change makes an impact in those trying to achieve the American dream.

“Formally, they’re called loan level price adjustments," said Michael Pena, sales manager and loan officer with Academy Mortgage. "They exist on loans, they always have."

The change kicks into gear this month, and affects the pricing framework of Fannie Mae and Freddie Mac—which back a majority of home loans made in the U.S.

Let’s say you’re getting a traditional mortgage on a $300,000 home, you have a credit score between 740 and 760, and you put 20% down. Pena says that, in that scenario, the buyer would face a fee adjustment that has increased to .875%, and likely means a higher interest rate.

“It does inherently punish the higher credit score a little bit, but the person with the higher credit score (is) still getting much less of a hit than the lower credit score,” Pena adds.

The government wants to clarify what it says are misunderstandings about the change.

“Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less," said Sandra Thompson, director of the Federal housing Finance Agency. "The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down-payment.”

Pena says it's best to not compare your situation to someone else’s.

“You’re still getting rewarded in that sense for having higher credit score, just not as much," he said. "Cross-comparing is not the best representation."

Whether it makes it easier or harder for someone to buy a home is still debatable, he adds.

“I think if you’re a 660 (credit score) and it just made the cost less, then it makes it easier for them," he says. "And I think if you’re a 770, you’re probably in a good spot already. But just because you have a 770 doesn’t mean you have a lot of money, so it could make that harder if the cost of that loan is a little bit more."


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