In the aftermath of what is now being referred to as the “Subprime Fallout”, mortgage insurance companies are progressively tightening their guidelines. Mortgage insurance is required when a borrower puts less than 20% down on a purchase transaction (or your LTV - loan to value - is less than 80% on a refinance). In our ever present automated world, it used to be that as long as FNMA’s or Freddie Mac’s automated underwriting engine would approve the loan, you could obtain the mortgage insurance necessary to complete the transaction.

Now, however, the mortgage insurance companies are tightening their guidelines which means that borrowers with lower credit scores may not be able to purchase a home without a larger down payment. While in the short term, this may affect home sales, I believe that these guildelines will loosen in the next three to six months.

Fortunately, there are other programs available for home buyers that are more lenient on financing. For example, see our post on FHA financing and the limit increases for more information.