Certain Higher-Cost Loans Explained
Some home loans are priced high enough to fall under extra federal rules. Here is what makes a loan higher-cost, the protections that come with it, and the loans we do not make.
What comes with a higher-cost loan
The protections federal rules require
- A verified ability to repay based on your income and debts
- Limits on the points and fees a lender can charge
- A required escrow account for taxes and insurance
- A full appraisal, including an interior inspection
- Clear disclosures of the loan’s terms before closing
- No loans that meet the high-cost HOEPA definition
Extra protections apply
Your ability to repay is verified
Points and fees are capped
Escrow is required
A full appraisal is required
We avoid high-cost loans
What A Higher-Cost Loan Is
A loan priced above federal thresholds
A higher-cost loan is one whose rate and costs rise above thresholds set by federal rules. It is not a separate product you apply for. The label is triggered by pricing, and when it applies, extra consumer protections come along with the loan.
The biggest protection is the ability-to-repay rule. A lender has to verify that you can actually afford the loan by documenting your income, your monthly obligations, and your debt-to-income ratio, rather than assuming you can pay.
Higher-cost loans also require an escrow account for taxes and insurance, a full appraisal with an interior inspection, and strict limits on points and fees. The most extreme category, high-cost loans under HOEPA, carry the heaviest rules, and we do not make loans that meet that definition.
Why these rules exist for you
Higher-cost rules are designed to protect borrowers. Here is what they mean in practice.
Pricing Triggers The Label
A loan becomes higher-cost when its rate and costs rise above thresholds tied to average market rates. You do not choose it. The pricing of the loan is what brings the extra protections into play.
Ability To Repay Is Verified
The lender must confirm you can afford the loan by documenting your income, your monthly debts, and your debt-to-income ratio. This ability-to-repay standard is at the center of the rules.
Points And Fees Are Capped
Federal rules limit the total points and fees that can be charged on covered loans. A loan that exceeds the limit does not qualify, which keeps upfront costs in check.
Escrow Is Required
A higher-cost loan requires an escrow account for property taxes and homeowners insurance, so those bills are collected with your payment rather than left for you to manage alone.
A Full Appraisal Is Required
These loans require a full appraisal that includes an interior inspection of the home. It protects you from paying more than the property is worth.
We Avoid High-Cost Loans
The strictest category, high-cost loans under HOEPA, carries the heaviest obligations. We do not make loans that meet that definition, and certain state higher-cost loans are not eligible either.
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Frequently Asked Questions
Common questions about higher-cost loans.
It is a loan whose rate and costs rise above thresholds set by federal rules. It is not a separate product; the pricing triggers the label and brings extra protections.
It requires a lender to verify you can afford the loan by documenting your income, your monthly debts, and your debt-to-income ratio before approving it.
Yes. A higher-cost loan requires an escrow account for property taxes and homeowners insurance, collected along with your monthly payment.
Yes. Federal rules cap the total points and fees on covered loans, and a loan over the limit does not qualify.
Yes. These loans require a full appraisal that includes an interior inspection of the home.
It is the strictest category of loan under federal law, with the heaviest protections. We do not make loans that meet the high-cost definition.
No. A qualified mortgage meets federal ability-to-repay and points-and-fees standards. A higher-cost loan is defined by its pricing and can carry additional requirements.
Find out what you qualify for
Have questions about how a loan is priced and what protections apply? We can walk you through it in plain language.
Get Pre-QualifiedLoan pricing, terms, and program eligibility are subject to credit approval, income and asset verification, and applicable federal and state law. Whether a loan is treated as higher-cost depends on its pricing and the rules in effect at the time. This page is informational and is not a commitment to lend. Not all applicants will qualify.