Many of the programs that have been long available that allowed good borrowers to get 100% financing just got a lot more complicated.  Fannie Mae and Freddie Mac (the 2 congressionally sponsered entities that help people get loans) have now started labeling many, if not most, zip codes in the Arizona real estate market “distressed”.  The outcome of this change is that lenders then take 5% off of the highest allowable “loan to value”.  In other words, if Joe Borrower is approved for a MyCommunity mortgage that allows him to get 100% financing, the loan officer then runs his loan through the computer applications for Fannie Mae or Freddie Mac which gives Mr. Loan Officer the flag that tells them that this property is located in a defined distressed real estate market.  All of the sudden, Joe Borrower is required to make a 5% down payment in order to make this loan work.  This is also the case for home owners looking to refinance.  If your appraisal says that you have about 20% equity in your home and the computer flags your area, the bank will look at it as if you only have 15% equity and you will be forced to pay mortgage insurance.

What does this mean for you?  Simply put, if you are considering purchasing a home, FHA has more flexibilty so that you should only need the standard 3% down as long as you have a good solid appraisal.  Also, the down payment can be gifted from a family member.  You will have to pay an upfront mortgage insurance fee of 1.5% but it is financed in and the unused portion is refundable if you move out of the loan without defaulting (after being pro-rated).  If you are considering refinancing, factor in the possibility that your loan to value may be looked at by the lender as being 5% higher than you think it is.  Better safe than sorry.

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