Attempts at Relief and Reform

Raising the Borrowing Bar; FHA and FNMA Requirements

Posted on Monday, March 15, 2010

The big tug of war now is between easing standards to get more folks in the market and absorb inventory verses raising the standards to where we all know they should be to reduce the chnace that we're only creating new loans that will default. I'm all for what's best for our country and each of us in the long term as opposed to more short temr fixes. Historically the increase in homeownerships rates that resulted from lower standards is nominal.

To get best interest rates now, you'll need at least a 720 fico of the 850 possible. With FNMA, every 20 points your score drops under 720 means more in origination fees. You can get in for as litle 5% down but will pay more fees. FNMA minimum credit score has increased to 620 from 580. If you put less than 20% down you'll need mortgage insurance. Most MI companies today won't insure less than a 680 fico and charge more if its less than 700 ($300 to $1000 a year for every $100k borrowed).

FHA allows 3.5% down but requires MI at 1.75% upfront which increases to 2.25% next month.
Also they require about $500 a year for each $100k borrowed.

If you put down 20 to 25% you can avoid MI but will pay extra origination fees because FNMA considers you in the highest risk group since home prices may decline.

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