By Jeffrey Chalmers

Four score and seven years ago . . . buying a house meant coming up with some serious coin. If you had any shot of buying a house, you had to show the bank that you had a minimum of 20% down before they would even talk with you. Then, just like the economy, things changed. Lenders, with the approval of the powerful Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac, loosened their historically rigid lending guidelines and aimed to boost the national homeownership rate. Was the change good? Absolutely.

Although the last several years has seen many consumers benefit from programs such as 85%, 90%, 95% and even 100% financing, a small percentage who were qualified shouldn't have been. The result was a mortgage market that once again changed and subsequently reconfigured lenders' loose lending guidelines, which now resemble a combination of the old days of 20% down and current market needs.

Today's lenders will no longer entertain 100% financing options and some aren't even offering 95%. But, the market hasn't entirely shut off new would-be homeowners. In fact, lenders, as usual, have come up with a way to beat the street. Generally, lenders require private mortgage insurance (PMI) when a consumer has less than 20% to put down as a deposit or is looking to borrow more than 80% of the value of the home. When the lending guideline meets a loan to value (LTV) of more than 80%, PMI becomes necessary in order to protect the lender and its future investors in the case of foreclosure and potential loss of equity. With PMI, the lender is protected for the loan balance exceeding the 80%.

One common way to bypass PMI during the go-go days was to do an 80/20 combination, which included an 80% first mortgage and remaining 20% second mortgage or even an 80/15/5. Doing this, however, sometimes resulted in additional fees and caused more complexity than doing just a single loan.

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Recently, lenders came up with what's called single MI where the borrower has only one mortgage -- saving them any closing costs associated with doing a second (or third) loan. Now, although PMI and MI are interchangeable in meaning, what it ultimately means to the lender is risk. And, where there is risk, there is cost to take on that risk. So, while the lender agrees to take on the risk (some as high as 90% LTV), the borrower must take on the cost - in the form of a higher rate.

How do you know if qualify for this or similar programs? Plan a meeting with your mortgage professional and discuss what's new in the mortgage industry and how to structure various projects. I always recommend quarterly meetings to my clients. Don't be shy about picking up the phone and asking questions. It pays to get educated and profit from your broker's experience.

Jeffrey Chalmers is a 20-year veteran of the real estate, finance and title industries. His company, Real Solutions LLC, offers consumers a one-stop real estate service at www.ClicknCompare.com and also free dynamic web marketing for ForeclosuresMass investors. He can be reached at (800) 434-4127 x901 or at jchalmers@clickncompare.com.

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