Mortgage Finance Blog

Article first published as Mortgage Insurance, Programs Loosen-up on Technorati.

Mortgage loan applications may be on the rise once again. This is due to the recent changes in underwriting guidelines in both, mortgage insurance and mortgage lending. The beginning of the new year has now pitted FHA and Conventional lending where an applicant can decide to forgo a funding fee and deposit slightly less of a down payment to close with conventional financing.

Prior to the recent changes, mortgage insurance was covering those whose FICO scores were at least 720 on loans that were at 80% or more of the value of the home. Now, mortgage insurance is covering those scoring as low as 680 for the same loan to value ratios. A 40-point swing is rather generous and shows that there is substantial confidence in the marketplace. This bodes well for the real estate market as interest rates are beginning to rise and proves to be a great way to keep potential buyers interested.

In order of highest risk loans due to loan-to-value we have:

• USDA, 100% financing
• Conventional, 97% financing
• FHA, 96.5% financing
• Conventional, 95% financing

You may want to check with your trusted mortgage professional about individual pricing on the new 97% financing program, as well as individual loan program details. Although the buyer will be saving money on the upfront mortgage insurance premium, there may be a break-even scenario based on the price adjustments of the interest rate available. In other words, due to the risk of the loan product, the bank will charge more for a lower rate so it will be important to weigh the cost of the mortgage insurance versus the cost of the loan.

Overall, it is a good sign that banks and insurance firms are feeling comfortable to open home ownership to more individuals by increasing their risk tolerances. Demand for home ownership must follow suit to prevent further declines in real estate values and mitigate foreclosure activity.