Fannie Mae Tightens Credit Score Requirements for Refinances & Purchases

May 24th, 2010

Effective June 19, 2010, Fannie Mae will impose higher credit score requirements and lower loan-to-value requirements on many mortgage products. Most impacted will be refinance mortgage applications. From purchase applications for a family’s primary residence to a refinance mortgage for an investor’s four-unit building, Fannie Mae is tightening the criteria for mortgage applications and approvals.

Accompanying the new Fannie Mae eligibility matrix will be new pricing tiers based on program type, property purpose and type, loan-to-value ratio, and credit scores. While the published eligibility matrix (link below) details guideline changes, it does not address pricing changes at this time.

The information below may be helpful as you use a free mortgage loan calculator to consider refinancing an existing mortgage or purchasing a new home with the historically low mortgage rates now available.

New Fannie Mae Eligibility Matrix

The overwhelming majority of mortgage applications, over 90% according to the Mortgage Bankers Association, are for 30-year or 15-year fixed rate mortgages (FRMs). Below is the Fannie Mae eligibility matrix for single-unit primary residences (also known as owner-occupied properties), which includes:

Please keep the following guidelines in mind when using a free mortgage refinance calculator to evaluate a prospective mortgage loan, to help ensure that you are eligible and use your mortgage calculator properly.

620 if < 75%

660 if < 75%

620 if < 75%

660 if < 75%

660 if < 75%

620 if < 75%

Please note that while Fannie Mae will finance up to 95% loan to value on some products, you will still need to obtain mortgage insurance for mortgages with loan to value ratios over 80%. Be aware that in some regions of the country, mortgage insurance companies are frequently still not writing some potential insurance policies. For instance, obtaining mortgage insurance for a condominium in California with only 5% down is very difficult at the moment, as many mortgage insurance companies simply consider this too risky.

Also note that “Hi-Balance” applies only to loans in select areas of the country federally designated as ‘high cost’ due to their inherent, higher-cost mortgage markets. Please refer to Fannie Mae Loan Limits for more information.

Non-Traditional Mortgages & Multi-Family Properties

Fannie Mae has also made the eligibility criteria even tighter for non-traditional mortgages:

Not All Mortgage Products Are Changing…Yet

It is important to note that the changes discussed here are only for Fannie Mae mortgage products; Freddie Mac and the Federal Housing Adminstration (FHA) have not recently announced similar, drastic changes to their policies. For example, the FHA will still fund cash-out refinances for hi-balance mortgages over 60%, as will Freddie Mac up to 75%, although the FHA does have mortgage insurance requirements on all of its mortgage products.

However, Fannie Mae is still the single largest owner/guarantor of mortgage loans in the country, so the availability and pricing of many loans ineligible for sale to Fannie Mae is likely to be affected. Nonetheless, in many cases, you may still be able to obtain an excellent mortgage to meet your needs–especially with today’s low mortgage rates. Check with a loan professional to be sure; they can help you find the best loan for your situation, whether or not it conforms to Fannie Mae standards.

For more detailed information, see the Fannie Mae Eligibility Matrix.

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