If you have a good credit score and are looking to buy a home, you may be required to pay more to subsidize other home buyers who have bad credit thanks to a new rule from the Biden Administration.
Starting May 1, a new federal rule will force homebuyers with good credit scores to pay higher mortgage rates and fees to subsidize those with riskier credit ratings who are also buying houses.
The Federal Housing Finance Agency’s push for affordable housing has led to the introduction of loan-level price adjustments (LLPAs) that will be enacted by Fannie Mae and Freddie Mac, affecting mortgages originating at private banks across the US.
Homebuyers with credit scores of 680 or higher will pay around $40 more per month on a $400,000 home loan. Homebuyers who make down payments of 15% to 20% will face the largest fees. The new fees will only apply to Americans buying houses or refinancing after May 1.
The Washington Times was the first to report on the new rule.
The new FHFA rule inverts the typical use of credit scores in free market economies.
Traditionally, those with better credit scores could expect to pay less for debt because financial institutions consider lending to them less risky.
For those looking for more information on the topic, here are the new schedules for mortgage rates and costs based on credit scores.
Here’s the old schedule:
Here’s the new schedule: