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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
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- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Higher Priced Mortgage Loan
When you are planning to purchase a property using a mortgage, the lender or the bank providing you the mortgage will charge you fees apart from the interest rate on the loan amount that you borrow.
In some situations, your mortgage could be a higher priced mortgage loan (HMPL). In this post, we will understand what is a higher priced mortgage loan in detail.
What Is A HPML?
An HPML is also known as section 35 mortgage is a mortgage loan in which the APR (Annual Percentage Rate) is more than the (APOR) average prime offer rate by a certain percentage margin that is being offered to highly qualified borrowers.
The annual percentage rate (APR) is the rate that is charged on loan including all the costs like points, origination fees, mortgage insurance, and other costs.
The average prime offer rate (APOR) is set by Federal Financial Institutions Examination Council (FFIEC).
The APOR is set depending on the weekly survey done by the FFIEC that shows the average mortgage interest rate and the terms offered to well-qualified borrowers.
When Is The Mortgage Considered To Be An Higher Priced Mortgage Loan?
The mortgage that you are applying for will be marked as HPML if your APR is above a certain percentage higher than APOR based on the type of mortgage you are applying for.
First Loan Mortgage: The first mortgage hold the primary position in the lien stack in the property.
If you are applying for a first mortgage that has a loan amount below the conforming limit, and the APR of the mortgage is higher than 1.5% than the APOR for the first mortgages, your mortgage will be considered as an HPML.
The lender who holds the primary lien position gets paid first if the property is foreclosed.
Second mortgage: Second mortgage holds a secondary position in the lien stack in the property.
If you are taking a second mortgage, home equity loan, or a HELOC that has an APR of 3.5% higher than the APOR for second mortgages, your second mortgage will be considered an HPML.
The lender who holds a second mortgage gets paid after the lender that holds the primary lien in case of a foreclosure.
Jumbo loan: A jumbo loan is a loan where the loan amount is higher than the conforming limit that is set in your area.
If your taking a jumbo loan that has an APR of 2.5% or higher than the APOR set for jumbo loans, your loan would be considered an HPML.
Let’s take an example
Let’s say that you are taking a mortgage to buy a new property with a loan amount less than the conforming limit with an APR of 5.75%. Your lender will check the APOR for the first mortgages.
Let’s say that the APRO is 4%. In this case, the APR for your mortgage is 1.75% more than the current APOR for the first mortgages. Hence this mortgage would be considered a higher-priced mortgage loan.
What Are The Higher Priced Mortgage Loan Requirements?
The requirements for the HPML are completely based on your location.
Your trusted loan officer would be in a better position to know the exact required parameters for these loans.
Few basic requirements that the lender needs to take for the HPMLs to ensure you repay the loan and do not default.
- The lender would require doing a full interior appraisal for the property in question with the help of a certified appraiser.
- If the property in question has been flipped recently, the lender would require doing a second appraisal through a certified appraisal.
- In many situations, the lender may ask to maintain an escrow account for up to five years.
Conclusion
Since there are some extra steps that the lender has to take, the borrower ends up spending more compared to a regular mortgage loan.
As a borrower, you need to be prepared to handle this additional cost if you are getting a high-priced mortgage loan.
