Thursday, October 28, 2010

Mortgage Insurance with 3% Down

Last month, Fannie Mae announced that they were lowering their down payment requirement to 3% for one-unit primary residence purchase transactions. However, at the time of the Fannie Mae announcement, the mortgage insurance companies required 5% down, so the Fannie Mae announcement did not really change things.

But here's some GREAT NEWS! The mortgage insurance companies have just announced that they will now insure loans with 3% down. Here are some details:

-- The minimum down payment is only 3%.
-- The minimum credit score at the moment is 700.
-- These are not restricted to first-time home buyers. If you have owned a home in the last three years, you are still eligible.
-- Primary residences only. No second homes and no investment properties.
-- One-unit properties only.

What impact does this have on the real estate industry?

Lowering the down payment requirement from 5% to 3% will increase the number of people who will be able to buy a house. However, these new down payment rules are only for people with good credit. When a loan that is insured by a mortgage company goes into foreclosure, the mortgage insurance company has to write a very big check to the lender, and they want to make sure they don't write too many big checks. Do not think that the lower down payment requirement is the beginning of a return to the sub-prime mortgage days! The mortgage insurance underwriting guidelines are still very strict.

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