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Borrowers whose conventional loans seem riskier may pay more for their loan because of loan-level price adjustments, or LLPAs.
LLPAs are typically built into a conventional loan's mortgage rate, so borrowers may not know the reason they're paying more for the loan.
Government-backed loans, including FHA mortgages, don't charge LLPAs but do have other ongoing fees borrowers should know about.
What is a loan-level price adjustment (LLPA)?
Loan-level price adjustments are designed to remove some of the risk from the overall mortgage market.
The Federal Housing Finance Agency (FHFA) sets loan-level price adjustment policies, and Fannie Mae and Freddie Mac apply these adjustments to conventional mortgages.
Born from the 2008 financial crisis, LLPAs emerged to help Freddie and Fannie manage risk without penalizing all borrowers equally.
These fees adjust a borrower's unique homeownership costs based on specific risk factors in your loan application, from your credit score to how much you're putting down.
...in as little as 3 minutes – no credit impact
How LLPAs work as a risk management tool
When mortgage defaults spiked in 2008, Fannie and Freddie faced massive losses. Instead of raising rates across the board, they created a more targeted approach: charge more for loans with higher default probability.
On paper, borrowers with lower credit scores, higher loan-to-value ratios, and higher debt-to-income ratios show a higher risk of default compared to a borrower with excellent credit, a large down payment, and plenty of room in their monthly budget to make the loan's payments.
LLPAs tend to be highest for borrowers who bring multiple danger areas into underwriting: someone with an average credit score, a higher DTI, and a minimum down payment, for example.
What makes LLPAs different from other mortgage costs
Unlike most mortgage costs, lenders don't charge LLPAs. Neither do third party service providers like attorneys and appraisers. Instead, the Federal Housing Finance Agency (FHFA) sets these policies and lenders apply them to conventional mortgages.
Here's what else sets them apart:
– They apply only to conventional loans: Only conventional loans backed by Fannie Mae and Freddie Mac carry LLPAs. FHA, VA, USDA, and HUD Section 184 mortgages skip these fees and instead use their own mortgage insurance or guarantee structures, which affect overall borrowing costs differently.
– They can seem hidden: Most borrowers never see LLPAs as separate line items. They appear embedded within a loan's interest rate, making them less visible than other mortgage costs despite their substantial impact.
– Their cumulative structure: Unlike flat fees, LLPAs stack up based on your risk profile. Multiple risk factors mean multiple charges, potentially adding significant costs to your mortgage.
...in as little as 3 minutes – no credit impact
Risk factors used to assign LLPAs
Under FHFA’s LLPA framework, Fannie Mae and Freddie Mac apply LLPAs based on factors such as:
Credit score
Credit scores drive up LLPAs. On paper, a conventional loan requires a FICO score of 620 or higher for approval, but someone with a credit score that low may face a significant rate hike via LLPAs.Â
Federal updates in 2023 narrowed the price gap between higher credit score and lower credit score borrowers, but credit scores still matter.Â
Loan-to-value (LTV) ratio
Loan-to-value ratio, or LTV ratio, compares the size of a mortgage loan to the value of the home. A $400,000 home with 10 percent, or $40,000, down leaves $360,000 to be mortgaged. This home has an LTV of 90 percent.Â
Higher LTVs create higher loan risk. For example, a loan at 97 percent LTV means only 3 percent of the home is not mortgaged. If home values fell, this home risks being underwater, meaning the mortgage balance exceeds the home's value.
LLPAs, therefore, are typically higher on loans with higher LTVs.
Debt-to-income (DTI) ratio
Debt-to-income ratio measures how much income a borrower uses to keep debts current. Home buyers with lower DTIs have more money to spend on housing. They're better positioned to repay the loan.
As a result, they seem less risky to lenders and may qualify for lower fees.
Loan purpose and occupancy type
How a borrower plans to use the home matters.
– Primary residence: Lowest LLPA feesÂ
– Second home: Moderate fee increases
– Investment property: Highest LLPA charges
Primary residences cost less because data shows borrowers are more likely to keep loans current when they live in the home.Â
Single-family homes also get lower LLPA pricing. Each additional unit increases your fees:
– Duplex: Higher LLPAs than single-family
– Triplex: Even higher adjustments
– Fourplex: Steepest multi-unit penalties
Lenders view multi-unit properties as riskier investments, even for primary residences. A duplex you live in will cost more to finance than a comparable single-family home.
How LLPAs affect your mortgage rate
The cost of loan-level price adjustments comes clear when you see how they translate into actual mortgage payments. These fees either bump up your interest rate or appear as upfront costs that add thousands to your total borrowing expenses.
This LLPA system works kind of like auto insurance. Higher-risk drivers pay steeper auto insurance premiums. Higher risk mortgage borrowers may pay higher mortgage rates.
To lower the impact of LLPAs, you could improve your credit score and save for a larger down payment to reduce these mortgage costs before you apply. Finding a less expensive home could also reduce borrowing costs.
Another strategy: Look into FHA or other government-insured loans. These loans don't charge LLPAs, but they do charge upfront and ongoing mortgage insurance premiums. Each situation is different, but for some borrowers, including many first-time homebuyers making small down payments, the costs work out better with government-insured mortgage loans.
Related: Use our mortgage calculator to see how different interest rates affect monthly payments.
Common questions about LLPAs
Will LLPA updates cause mortgage rates to rise?
There has been some public discussion about potential future LLPA changes on new purchase and refinance loans, but no 2026 updates have been formally proposed or adopted.
2023 updates created winners and losers. Borrowers with lower credit scores saw fees drop, while those with excellent credit faced increases compared to earlier pricing models.
Lower credit borrowers still pay more, but the gap between higher credit score and lower credit score borrowers closed significantly.Â
Do high and low credit score borrowers now pay similar fees?
Credit scores still matter a lot. The gap between higher credit score borrowers and lower credit borrowers has narrowed since 2023, but excellent credit still costs less overall.
Who controls LLPA rules and updates?
The Federal Housing Finance Agency (FHFA) sets all LLPA policies and updates. This government agency oversees Fannie Mae and Freddie Mac, which implement the changes.
FHFA reviews and adjusts the LLPA matrix regularly based on market conditions, risk assessments, and housing policy goals. Their modifications aim to balance mortgage market stability with housing affordability, though the results don't always align with borrower expectations.
When FHFA announces changes, they typically take effect within 60 to 120 days, giving lenders time to update their systems and pricing.
Are there any mortgage options that don't include LLPAs?
Yes, many loan programs are exempt from LLPAs. FHA, VA, USDA, and HUD Section 184 mortgages do not include these fees. These options may offer better terms for qualified applicants, although they have their own unique requirements and insurance premiums to consider.
Take control of your mortgage costs
LLPAs affect every conventional mortgage, yet most borrowers discover these fees only after they've impacted their rate.Â
Credit scores above 780 will unlock the best pricing tiers, though the gap between excellent and good credit continues narrowing. Down payment size also remains a major cost factor. Every additional 5 percent you can put down can reduce LLPA fees.
Want to avoid LLPAs altogether? FHA, VA, USDA, and HUD Section 184 loans bypass these fees. While these programs have their own insurance requirements, they might offer better overall terms for qualified borrowers, especially those with lower credit scores or smaller down payments.
A preapproval can help you see how much you'd pay with different loan scenarios.Â
...in as little as 3 minutes – no credit impact