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And for those SFH Investor Clients...PMI, FICO Rules, etc.

While this news has been out for a little while, I thought I'd make sure that everyone is on the same page. Underwriting guidelines continue to be squeezed as the market looks for ways to combat the heavy losses due to foreclosures. In the last couple of months these changes have (or will) gone into effect:

1. Mortgage Insurance companies will no longer provide mortgage insurance on investor transactions. Therefore, investor loans now require a minimum down payment of 20%.

• Keep in mind, even with 20% down, there are some pretty big pricing hits; while the hits are still there with 25% down, they are quite a bit lower.

2. The ability to qualify when keeping a current property as a rental and buying a new home to live in, is much more difficult. Here are the new guidelines impacting this process:

• Conversion to an Investment Property: Fannie Mae will permit the 75% rental income calculation to be used IF there is documented equity of at least 30 percent in the existing property. The rental income must be documented with a copy of the fully executed lease agreement AND a copy of the receipt of a security deposit from the tenant and deposited into the borrower's account. If the 30 percent equity cannot be documented then both the current and the proposed payments must be used for qualifying AND 6 months PITI for BOTH properties will be required for reserves.

• The FHA process is not quite as challenging, but close. it requires only a 25% equity position. And will not require the additional reserves.

3. Pricing hits for credit scores on conventional loans. The hits kick in at 60% LTV and become more dramatic as the LTV climbs and the FICO score lowers.

• Example, an 80% LTV loan has a 1.75% pricing hit with a 670 FICO. In the past, that FICO was considered pretty good. For conventional pricing, not anymore!

• FHA hits appear to be limited to FICO scores under 620.

4. Mortgage Insurance is tightening down, especially on condos with LTV's of 90% or greater!! Make sure your lenders get their Mortgage Insurance approval as soon as possible, not just their loan approval!

5. Don't forget, the FHA new down payment of 3.5% goes into effect on January 1st. Best recommendation is to get a home under contract by the end of November
so it closes and FUNDS by Dec. 31, 2008.

Please do not hesitate to contact me with any questions. My industry is changing, It's important that we understand the changes and how they impact our clients!


This page contains a single entry from the blog posted on November 3, 2008 4:01 PM.

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