Homebuyers meeting with loan professional to discuss changes to loan-level price adjustments

LLPA Changes in 2023: How Loan Pricing is Impacted

March 01, 2023

Loan-level price adjustments will now factor a borrower’s debt-to-income ratio into pricing.

You may be seeing a variety of mortgage interest rates floating around lately, but your rate is dependent on a lot of information. And now, due to recent changes, that includes your debt-to-income ratio.

New this year, loan-level price adjustments (LLPAs) will now factor debt-to-income (DTI) into pricing, impacting those with conventional loans.

At Waterstone Mortgage, we strive to always be transparent when it comes what is involved as you embark on your journey to homeownership (or if you are looking to refinance). Continue reading to learn more about these changes and how they could impact your mortgage interest rate.

What is an LLPA?

In 2008, loan-level price adjustments (LLPAs) were introduced by the largest government-sponsored enterprises (GSEs) that guarantee most conventional mortgages originated in the United States: Fannie Mae and Freddie Mac. Most major lenders follow the GSE guidelines, which will impact most loans.

This new (at the time) loan pricing feature was introduced in response to the last economic downturn, stemming from the high rate of defaulted government-backed mortgages, to better safeguard the United States economy and minimize these agencies’ risk.

“Riskier” borrowers receive higher pricing, similar to how a car insurance premium is higher for those with known risk factors, like car make and model.

How are LLPAs Established?

LLPAs impact mortgage interest rates based on several factors, including:

  • Credit score
  • Loan-to-value ratio (LTV) – How much of the home’s price will be covered by a down payment vs. mortgage loan?
  • Occupancy type – Primary residence, second home, investment property, etc.
  • Number of units in the property – Single-family home, duplex, etc.

Now, your debt-to-income ratio or DTI will also be factored into LLPAs. 

What is DTI?

Your DTI ratio shows a lender how much of your monthly earnings go toward debt payments.

Your loan originator can help you calculate your DTI with greater specificity, but you can roughly determine the percentage on your own by dividing your monthly debt payments by your monthly income.

How will LLPAs Impact my Loan?

At Waterstone Mortgage, we constantly monitor all mortgage market activity and updates to position ourselves as advisors in today’s ever-changing mortgage market. In other words, we take pride in being proactive rather than reactive to help our clients get the best deal possible.

While you can calculate a general estimate of your DTI, certain documentation is required to accurately determine DTI as the agency guidelines require. Your loan originator may need to request additional information and the DTI calculation could change multiple times through the loan process. And because the LLPAs are now based partially on DTI, this could lead to rate lock pricing changes throughout the loan process.

Contact a loan professional in your area to learn more. One of our experts will help you better understand your DTI and what drives this new loan pricing factor – now more than ever – so you are equipped with the most ideal, current, and realistic pricing and product offering when shopping for a new home or refinancing your existing home loan.