Conventional Loans now have a new change that will reduce your interest rate by up to 1.75%. So if your interest rate right now is something like 7.5%, you could very likely see that go to 6.5% or even lower. This is a huge change for first-time home buyers who have been feeling the pressure of high home prices and high interest rates that are making homes more unaffordable.
You can get access to this program starting December 1st to help reduce your mortgage payment and save thousands in interest over the time that you have your loan.
This program change was introduced by a government body that makes the rules for conventional loans.
See, normally conventional loans, how it's called Risk-Based Pricing. Risk-Based Pricing looks at your credit score and down payment and increases your interest rate based on how risky your loan is. So before I show you the hidden Risk-Based Pricing Chart, if you're looking to stay up to date on new program changes like this, and if you'd like a free mortgage quote, my team of helpful loan officers. Would love to help you simply go to Win The House You Love.
So below is the Hidden Risk-Based Pricing Chart. This is Fannie Mae's Loan Level Price Adjustment Chart. Now, don't be too overwhelmed by this.
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Basically what happens is a mortgage lender is going to look at your credit score along with your down payment to see what kind of fee is going to be added to a loan. If you're familiar with discount points, it's very similar to that. Now, there are lots of different percentages here. These don't actually equate to your interest rate percentage. These equate to the upfront fees that you would pay on your mortgage and what most lenders do, instead of having you pay the fee, they actually just increase your interest rate.
So, for instance, we can see that all the way here at the bottom. That's 3.25% in fees added to the loan, and instead of charging you that fee, the lender is then going to increase your interest rate. So for most first-time home buyers, all of these fees are cut.
So I made this chart here that explains this a little bit easier to look at. So it took all the numbers that you just saw and then showed what it might look like in the interest rate reduction that you're going to get.
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So for instance, if you have a 740 credit score and you're putting 3% down, you're likely going to see a reduction of around a half percent in interest. So if you were getting quoted a 7% interest rate, you likely will be quoted a 6.5% interest rate once this takes effect. We can also look across the chart here. If you're looking at 15% down with a 640 credit score, you're likely going to see close to a 1.63% interest rate reduction. So you can look through this chart here to see all these changes here. That you could possibly see with your interest rate.
So there are two main programs that qualify for this loan, and these are gonna be available to all lenders in the US. This is not something special that you have to get, and it doesn't cost any money to you.
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So this is primarily available through a HomeReady or Home Possible conventional loan, or a standard conventional loan. HomeReady and Home Possible are available through most lenders, but they do require, or they have an income limit, and it's the maximum of 80% of the area median income. Now, this is very easy to look up. I have a link in the description for you that will allow you to see this.
So for instance, what I can do is go in here into the Fannie Mae Area Median Income Look up, and I can search maybe Dayton, OH. In there, it says HomeReady Income Limit. So for the HomeReady or Home Possible loans, I would need to make $67,280 or less per year to be able to qualify for this loan and also qualify for the interest rate reduction. Now if we get a standard conventional loan, and just a side note, both of these allow 3% down.
So that is an option with both of these loans. Either a maximum of a hundred percent Area Median Income or 120% in high-cost areas. So we can do the same thing here on this chart. So if we were going with a standard conventional loan and we wanted to get this interest rate savings, we would need to make $184,100 per year or less.
Or if we're in a high-cost area, so let's say we're looking in n. It could be 120% of the Area Median Income. So what we can do is take 95, 600 times 1.2. So we would need to make $114,720 per year or less to be able to qualify for this type of loan. And to be able to qualify for the interest rate reduction.
Normally on a standard conventional loan, you do not have these income limits, but to qualify for this interest rate reduction, you do need to qualify for the income limit. And you also do need to be a first-time home buyer. And a first-time home buyer is someone who has not been onto the title to a home in the past three years.
So you may have purchased a home and then sold it a few years ago, but as long as you haven't been on title to a home in the past three years, you will qualify for this program.
This is only for new loans, and new purchase primary residence loans. It does not work retroactively. If you bought a home a month ago or a year ago, I'm sorry, this is not qualify and it does not work on refinances. It is not retroactive.
Also, this is not a program that's been paid for or it's being paid for by taxpayers. A lot of programs that have been introduced recently that are bills that people are trying to get passed through Congress usually are funded by the government.
This is not the case. What's happening is FHFA. Which is that government body who makes rules about conventional loans. They're just reducing the fees for future purchase loans for first time home buyers. So this is not paid by anybody. There's no fund for this. It's not gonna run out of money. This is the change that they made here.
It's not paid for by somebody else. And this is automatically available to all lenders. Some lenders are honoring this change before December 1st. But all lenders will have this automatically. Some of them will probably have it without even knowing about it when December 1st rolls around.
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Go ahead and look up if your income qualifies. Again, you can check to look up your income and see if you're in the ballpark range to move forward with a program like this.
If you need help with the math, feel free to reach out to me by checking on my website Win The House You Love and get pre-approved. I have a team of help loan officers who would love to help you through this program, and qualify for a lower interest rate, or even if you're not able to qualify for this program. If you just have questions or wanna get the ball rolling with a free, no-obligation quote, we would love to help you out.
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