The mortgage insurance companies have now joined the credit crunch bandwagon and tightened their guidelines, so it is becoming even more imperative that borrowers have decent credit.
Why? Because if you have little or no money for a down payment, not only will you be charged significantly higher interest rates, but now higher mortgage insurance rates as well.
Until recently, a computer generated underwriting verdict of “approve/eligible” allowed us to use the very lowest mortgage insurance premium rates regardless of the FICO score. Now, transactions that have a high loan-to-value ratio and low FICO score will be subject to higher mortgage insurance rates - regardless of the underwriting results. On high loan-to-value loans only a FICO score of 680 and above will qualify borrowers for Lender Paid Mortgage Insurance which can significantly lower monthly payments.
Possibly the most important change that agents should be aware of, as it could affect a borrower who is already approved for 100% financing, is that mortgage insurance companies are watching for declining markets. If the computer underwriting determines that the house is in a declining price area, and the appraisal comes back with similar notes, the loan-to-value figure will be reduced to 95% and a 5% down payment will be required. This might be able to be solved with an FHA loan with CHAFA, or other agency, providing the down payment, but there will be times when this is not an option. Real estate agents will need to address this possibility, not only when they list a property, but also when showing clients who are looking for 100% financing.
Written by Frances & Rusty Wehner - Visit Website
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ann connelly 11.26.07 at 1:31 pm
I remember the days when you just needed a substantial downpayment and there was no such thing as a credit score. I realize this is dating me. I recall the lender looking at our credit history, but they made their own assessment about how credit-worthy we were. Am I just blocking out the other details? And weren’t interest rates exactly what they were, no matter what your credit history was? You either got the loan or you didn’t. I am having a real problem with other industries deciding someone should pay more because they have a low credit score, that may not even be accurate.