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Many of the 100% Financing Options are Soon to be Gone

As you probably already know, there have been numerous changes within the Mortgage Industry over the last 12 months. More recently, we have seen drastic changes in the Mortgage Insurance guidelines. These guidelines are continuing to change with all MI companies and the majority of changes tend to be uniform with all companies – although not everyone has implemented them at the same time.

Mortgage Insurance, often referred to as PMI, is typically necessary when a borrower is looking to borrow more than 80% of the value of their home (refinance) or 80% of the lesser of the appraised value or purchase price (purchase). A loan can be insured by a private insurer (PMI) or through the Federal Government either through the VA or FHA programs.

Effective March 31, 2008, a huge player in the Private Mortgage Insurance Industry, MGIC, will no longer issue mortgage insurance on any 100% loan to value (LTV) programs; the new LTV cap will be 97%. Another big player, RMIC is also following-suit on the same day.  There has been no mention of grandfathering in the current pipeline of pre-approvals.

There is another critical change that takes effect on March 31, 2008 concerning credit scores and mortgage insurance; a minimum 680 credit score will be required for PMI on all cash-out transactions.

At the bottom of this article, I have included a list of general changes that have been announced.

What does this mean to you the homebuyer?  If you are pre-approved for 100% financing, you may want to talk to me about your pre-approval because you may be eligible for some of the other programs out there that will allow for pseudo-100% financing, or you may need to consider making a down payment for your home purchase.  Each person’s situation is different and we will have to evaluate yours together.

What does this mean if you are a Realtor?  If your buyers are currently working under the premise that they have 100% conventional financing available to them, you may want to ask them to revisit their pre-approval with their loan officer.  Please have them give me a call to explore their options.

Bottom Line: There are other options available to achieve this 100% financing but they will not be as easy or as fast-closing as they used to be.

My contact information is located here if you would like to talk about this further.

General Eligibility Changes that were Announced – this is a compilation of changes we are seeing industry-wide:

  • Loans over 97% LTV/CLTV are ineligible for PMI coverage (effective 03/31/08)
  • Loans over 95% LTV/CLTV with FICO scores under 680 are ineligible for PMI coverage
  • All loans with loan representative FICO scores below 620 are ineligible for PMI coverage
  • Cash-out refinances with loan representative FICO scores below 680 are ineligible for PMI coverage
  • Investment Properties with loan representative FICO scores below 680 are ineligible for PMI coverage
  • Loans which have potential negative amortization features (including pay option ARMs) are ineligible for PMI coverage
  • Cash-out refinances on second homes and investment properties are ineligible for PMI coverage
  • Rate & term refinance loans are limited to a maximum loan to value ratio (LTV/CLTV) of 95%
  • Streamlined refinances are typically allowed with a maximum LTV/CLTV of 100% when all of the following are true:
    • The property is a one-unit primary residence;
    • The principal and interest (P&I) payment on the new loan is equal to or less than the P&I payment on the existing loan;
    • There is no increase in the LTV category; and
    • Disbursement of cash to the borrower or any other payee does not exceed the lesser of $2,000 or 2% of the new loan amount.

NOTE: This does not affect FHA mortgages, as they are not insured by Private Insurers.

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