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What are LLPAs?  Loan Level Pricing Adjustments (LLPAs) are risk-based fees that mortgage lenders may apply based on certain borrower and loan characteristics. These fees impact the interest rate or closing costs of the loan.

Why do LLPAs exist? They help lenders manage risk. Borrowers with certain risk factors may face higher costs, ensuring the lender is compensated for potentially higher risk loans.

Factors that can trigger LLPAs: LLPAs are typically based on:

• Credit Score: Lower credit scores may result in higher adjustments.
• Loan Type and Purpose: Different adjustments apply for cash-out refinances, second homes, or investment properties.
• Down Payment Amount (LTV): Higher loan-to-value ratios (smaller down payments) can lead to higher adjustments.
• Property Type: Multi-unit properties may incur additional adjustments.

Impact on homeowners: LLPAs can either increase your interest rate or require you to pay more in upfront fees at closing. For example:

• Higher Rates: LLPAs may lead to a slightly higher interest rate if financed over the loan term.
• Upfront Costs: Alternatively, they may show up as a line item on closing disclosures.

How to minimize LLPAs:

• Improve Your Credit Score: Higher credit scores often lead to fewer or lower adjustments.
• Consider Loan Programs: FHA and VA loans typically do not have LLPAs, making them attractive for buyers with lower credit scores.
• Increase Your Down Payment: A larger down payment may reduce or eliminate some adjustments.

Please check your current market rates here.