100% financing has been getting tougher and tougher to obtain.  With the downturn in the real estate market, and mounting losses for lenders and others, standards have tightened up, and only the most well qualified buyers are able to obtain 100% financing, but it has still been available.  That may not last much longer.

PMI Group and MGIC Investment, two of the largest U.S. mortgage insurers, have announced larger down payment requirements for many markets in the nation.  These are the two largest groups that provide mortgage insurance.  They will no longer provide this insurance on 100% loans, requiring a 5-10% down payment minimum in all areas they deem to be distressed or restricted markets.  You can go here for details on these restricted markets.

In addition to the down payment requirement, both of these companies will be tightening standards on the types of transactions, loans and borrowers they will insure.  They will both require a minimum mid credit score of 620 in order to insure a borrower’s loan.  Additionally, they will both stop insuring negative-amortizing loans and pay-option mortgages.  These changes will have a minimal impact, as borrowers with 620 credit scores or below no longer qualify for 100% financing, and most of the neg-am loans and pay-option loans cap out at a low enough loan to value that mortgage insurance is not required.

Some additional restrictions that MGIC is putting on it’s insurance, however, will have an impact.  MGIC will no longer be insuring cash out refinances.  They will also not insure reduced doc loans, low doc loans or investment property loans.  These restrictions will have an impact if PMI decides to follow suit.

In short, this could well be the end of 100% financing.  If it is not the end, it is certainly going to make any 100% financing very difficult to obtain in the areas they restrict.  Some of the notable areas considered to be distressed or restricted areas include the entire states of California, Nevada, Florida and many of the larger metropolitan areas.

Check back in tomorrow, I will be talking about mortgage insurance, what it is, and why it is required.