While news that lender underwriting guidelines have toughened up is old stuff, and most people now know that unless they are candidates for financial sainthood they will be dinged with surcharges for everything from missing credit score cutoffs to buying a condo to obtaining subordinate financing (a second mortgage to increase your down payment). And most people know now that loans are largely underwritten by computer programs. What you probably don't know is that an automated approval from Fannie Mae or Freddie Mac may not be worth the paper it's printed on.
Because every loan approval has contingencies, things that need to be done before the maortgage can be funded. And unless you have at least 20% down, every Fannie or Freddie approval is contingent on you being able to get approved for Mortgage Insurance (MI). That used to be pretty much a formality--if you were good enough for the mortgage giants, you were good enough for the insurers. But today's mortgage insurance companies were burned in the recent mortgage conflagration and they are trying to make up for their losses and bring enough super-high-quality loans to offset the toxic stuff they are still carrying.
For example, Mortgage Guaranty Insurance Corporation (MGIC), one of the largest underwriters of mortgage insurance in the country, has updated it's guidelines as of July 1, 2009. It even has a "restricted markets list" and if your property is on that list you have about a snowball's chance in hell of getting insurance there.
For those in non-restricted markets, you still have a higher burden to meet than ever before. Your minimum credit score is 700. Cash-out refinances are ineligible, period. And even if you were approved by your lender, bankruptcies, deeds in lieu of foreclosure, or foreclosures within four years make you ineligible for MI. And this is the NON-restricted market. If you are in a market like for example the entire state of Nevada, your requirements will be so restrictive that you have either already been nominated for sainthood or you will not be getting insurance.
Even programs allowing secondary financing or owner carry-backs are for all practical purposes gone. So, you don't have a lot of options these days--it's either save a substantial down payment, go with a government loan program, like FHA or VA, or look for a bad credit lender that will make you a loan without requiring mortgage insurance (but these hard money guys will probably want very high rates and a few points up front).
It's a great market out there for those who are in a position to buy; find a bad credit lender and be prepared to pay big, find owner financing, lower your sights and try to qualify for a government loan, or save a larger down payment. That's what's out there now. Not pretty.
