Mortgage fees are changing for homebuyers next month. Here's what you should know.

If you're looking to buy a home, be aware that mortgages will change next month. Starting May 1st, upfront fees for loans backed by Fannie Mae and Freddie Mac will be adjusted.

Attention homebuyers: If you're planning to purchase a new home, keep in mind that mortgage fees will be changing from May 1st. Starting next month, Fannie Mae and Freddie Mac-backed loans will undergo adjustments in upfront fees due to changes in the Loan Level Price Adjustments (LLPAs). The fees vary depending on a borrower's credit score, downpayment amount, type of home, and more. The upcoming changes are related to credit scores and downpayment sizes, which may result in higher fees for some borrowers with higher credit scores and lower fees for those with lower credit scores.

The fee adjustments will affect the entire fee matrix based on credit score and downpayment. Those with a top credit score will still pay less than those with a lower credit score, but the penalty for having a lower credit score will be smaller than it was before May 1. For example, if a borrower has a score of 659 and is borrowing 75% of the home's value, they will pay a fee equal to 1.5% of the loan balance. Before the changes, they would have paid a 2.75% fee, resulting in a difference of $3,750 in closing costs for a hypothetical $300,000 loan.

The fee changes will apply to any loan guaranteed by either Fannie Mae or Freddie Mac, regardless of the lender. According to the Urban Institute, Fannie Mae and Freddie Mac's share of the mortgage market comprised nearly 60% of all new mortgages during the pandemic, up from 42% in 2019.

These changes are part of the Federal Housing Finance Agency’s (FHFA) broader examination of fees to provide “equitable and sustainable access to homeownership” and shore up capital at Freddie Mac and Fannie Mae. FHFA eliminated fees for conventional loans for about 20% of homebuyers last October, which helped boost affordability for many Americans, particularly as housing costs rose.

FHFA also plans to implement a fee on August 1 for borrowers with at least a 40% debt-to-income (DTI) ratio and 60% loan-to-value ratio. However, this fee was delayed after pushback from the industry. DTI is not a reliable indicator of a borrower's ability to repay as their income and expenses may change throughout the loan application and underwriting process. This fee may impact a larger group of potential buyers, limiting their purchasing power.

Overall, while these changes may benefit some borrowers with lower credit scores, they may negatively impact those with higher credit scores and those with high DTIs. Therefore, it is essential to keep these changes in mind when applying for a mortgage.

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