Real Estate: What New Mortgage Fees Mean For Ocean City

New fee increases may or may not affect buyers in Ocean City

Author

Kyle Scott
April 25, 2023

ocean city mortgages

Everyone has been talking about a new mortgage rates put in place by Fannie and Freddie that will see fees increase or decrease depending on where you fall on the credit and loan-to-value (LTV) spectrums.

It’s all part of their Loan-Level Price Adjustment matrix, which lays out additional fees paid on mortgages that are backed by the government entities.

In short, per NBC News:

The updated fee structure means the costs will increase by as much as 0.75% for borrowers with higher credit scores. And for people with lower credit scores, the fees will decrease by as much as 2%.

For example, a buyer with a credit score of 650 putting a 25% down payment on a $400,000 home would now pay 1.5% in fees on the loan, or $4,500. That compares with 2.75%, or $8,250, under the previous fee structure.

Meanwhile, a borrower with a credit score of 750 who puts down 25% on a $400,000 home would now pay 0.375% in fees, or $1,125, compared with 0.250%, or $750, under the previous fee regime.

NBC News

Do Well-Qualified Borrowers Actually Pay “More”?

So indeed the headlines are correct that well-qualified buyers will be negatively impacted by the policy meant to offset fees for lower-income buyers.

Without having the policy debate here, this still doesn’t mean that better qualified applicants will pay more. Here’s what those fee percentages look like based on credit score and LTV:

As you can see, lesser qualified buyers still face higher fees on their mortgages.

But the change from the previous rates to the current take square aim at typical well-qualified buyers:

Borrowers with credit scores ranging from 720-760 and with 80-85% LTVs will pay .75 points higher than they did before, or about $3,000 more on a $400,000 mortgage.

What Does This Mean For Getting a Mortgage on an Ocean City Property?

Obviously there’s a lot of variance depending on your credit score, loan amount, and whether you get a conventional loan.

Currently, the median sale price in Ocean City is just a tick under $1 million. A standard 80-20 loan at that price would push the loan amount over the current limit of $726,200 for conforming loans backed by Fannie and Freddie into Jumbo Loan territory and, thus, this specific change wouldn’t apply.

But 2023 also brought a $79k increase in conforming loans up to that $726,200 number, meaning more mortgages would qualify as conforming… and thus be eligible for the increase in fees (setting aside the ever-changing spread between conventional and jumbo loans).

So the answer really does depend on your individual circumstance.

If you’re buying a primary home in Ocean City: If you have a LTV ratio of anywhere between 70-95% totaling less than $726,000, and have decent credit, then yes, you’ll pay a bit more in fees. If you have a Jumbo Loan, lower LTV, or very bad or great credit, your mileage will vary.

If you’re buying a second home: The good news is that the current fee increase doesn’t impact second home mortgages.

The bad news is that increase took effect in 2022 and was substantial— anywhere between ~1% and almost 4% in fees. It used to be that primary and second homes paid the same in fees, but no longer.

One thing to know: The new fees are already in place. The media is reporting May 1 as the date for this change, but that’s the date for when loans are sent by banks to Fannie and Freddie, typically a few weeks after they close. So any rates you’re getting quoted now do indeed factor in these new fees.