Changes Coming with Fannie Mae Approvals

Now that the market is changing its important to know what needs to be done in todays environment to get the best rates for home loans going forward. Its absolutely imperative that those needing a home loan start at least 90 days prior checking their credit and improving their scores.

For Fannie Mae loans there are basically 3 types of approvals. The first and the best is Approve / Eligible. The others in graded order are EA 1, EA 2 and EA 3. EA simply means Expanded Approval. Its Fannie Mae’s version of risk level pricing. Most first time home buyers with a EA 1 or higher will qualify for most “Community Programs.” Starting in October, EA 2’s and EA 3’s will require 3% down and 5% down respectively. Its not too hard to get a home buyers credit score up in order to be at least an EA 1.

The Approve/Eligible status is getting pretty tough for those with less than perfect credit and and some assets. I have not seen any scores at or below a 620 come back with this risk level pricing with out substantial assets, which does not really matter as the rates for Approve/Eligible or EA1 are not that much different. Most often, all it takes is a few more bucks in the bank. The magic number seems to be 2 to 3 months of the mortgage payment, taxes and insurance in the bank. What is vastly different is the mortgage insurance (MI) premium.

It has been my experience lately, that mortgage insurance is at least double below a 620 and triple below a 600. I have seen MI premiums be $350-$450 for below 600 credit scores and as little as $90 for those who have credit scores of 620 or higher with an Approved / Eligible approval. If you have a EA 1 and your score is over a 620 you will unfortunately still be subject to those high MI premiums, probably somewhere around $200.

Aligning yourself with a knowledgeable loan officer is imperative. Do not let one loan officers rejection and lack of willingness hinder you from obtaining a home loan. I have helped home buyers with good credit get better and bad credit get good. It just takes some time, knowledge and effort on the loan officers part. In todays environment you can expect to pay in the high 6% range with the approve / eligible rating, mid to high 7% with an EA 1 and honestly I have not had any home buyers that fell below that 2nd tier pricing and I think with the current environment the payment, MI and pending down payment requirements from Fannie Mae will price that home buyer out of the market until that home buyer makes the necessary changes to their credit report.

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