What do you know about risk-based pricing? Better yet, do you really care about risk-based add-on fees?
If you are planning to buy a home in Indiana after March 1, 2011 using a conventional mortgage, you need to familiarize yourself with it. Otherwise, it’s liable to reach up and bite you right square in the ___.
In an article posted a couple days ago in the Washington Post, author Kenneth R. Harney details some of the changes that Fannie Mae and Freddie Mac intend to make effective in March. To sum it up, he states “If you want a loan this year, you’re going to have to pay more – thousands of dollars more in some cases – even if you have stellar credit scores and bundles of cash handy for a down payment.”
So what is this risk-based pricing and add-on fees? It is essentially a way for the lenders to nickel-and-dime you into paying higher rates. Think of it as “punishment a’la’carte”. Borrowing more than 75% of the cost of the home? You get a little higher rate. Need to borrow closer to 80%…. pay a little more.
How about a credit score under 800? Oops… that will cost you more! Credit score under 680??? You just “super sized” your order; possibly up to an additional 2.75% in fees if you are putting down just less than 20%. OUCH! 
Just to make sure we are all on the same page here, your interest rate will not go up 2.75% in the previous example: the cost to get the loan at the same rate as before will increase by 2.75%. Since most buyers do not want to dump all their savings into their home, they will look for a way to not spend the extra $5500 on a $200,000 home. To do this, they may opt to pay a higher rate to have the lender “credit” them more cash back at closing to pay the higher costs. This is where the rate will increase. Either way, it’s painful to the pocketbook.
Crying “Uncle” yet? How about additional fees if you are buying a condo? A manufactured home (if you can get a loan at all)? A rental property? More fees if you are buying in a distressed area (created by Fannie and Freddie)? You get the point…
I’m not trying to scare you. I just want you to see the whole picture!
It seems there is still a consensus that rates will increase in 2011, and we are seeing higher real estate values in many metropolitan areas. This just means that now really is a great time to buy or refinance a home. Even if you don’t have stellar credit.
Call me at 219-695-0369! Let’s spend 10 or 15 minutes on the phone to see if now is a good time for you to move forward with a purchase or refinance.
Afraid of being shot down? I don’t say “No”, just “Yes” or “When”. We can work together to best shape your plan for the future.
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.
Need cash to buy or refinance a home and make repairs or improvements? Ask about our FHA 203(k) Rehab loans.
