Risk-based financing is not the new buzz word in the mortgage industry; it is now the defining word when it comes to real estate loans.
What does it mean? Risk-based financing means that borrowers will be charged loan fees based on their financial risk as a borrower. Determining factors will be credit scores and loan-to-value-ratios.
Who does it affect? Risk-based financing will affect all borrowers who apply for a mortgage loan.
What does it affect? Risk-based financing will affect how much a borrower will pay in loan fess? and mortgage insurance premiums.
FHA has the most flexible guidelines in regards to credit history. However, FHA has already instituted risk-based financing in regards to the mortgage insurance premiums a borrower must pay. Mortgage Premium Insurance will be based on a borrower's credit score and payment history.
Fannie Mae and Freddie Mac has announced that they will be implementing a risk-based structure as well. Fannie Mae and Freddie Mac risk-based pricing will be determined by both a borrower's credit score and loan-to-value ratios. The new fee structure will take effect on November 1 and November 7, 2008 (respectively).
To be forewarned is to be forearmed. You should always consult with a qualified mortgage lender to determine your purchasing ability and power.
Learn More:
FHA - Risk-based Pricing Adjustment
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