Mortgage rates are near historic lows, spurring an increase in mortgage applications and applications to refinance. However, most financial institutions have tightened their loan underwriting standards, making it more difficult for home buyers to qualify for the best rates. In many cases, borrowers must issue a down payment of at least 20 percent; borrow $729,750 or less; have a credit score of at least 720; carry low debt relative to reliable income; buy in an area where home prices are relatively stable; and use a community bank rather than a national bank, to qualify for the best rates.


· Most of the risky loan packages, such as “stated income” loans, where borrowers were not required to document their income, and option adjustable-rate mortgages, where consumers could choose to pay less than the interest due, are no longer available. Some financial institutions offer interest-only loans, but they can be quite costly.

· The majority of today’s mortgage loans are through Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). Combined, the government sector accounts for 87 percent of mortgages. Purely private financing is rare.

· The government entities purchase and/or guarantee loans up to a certain limit. In high-cost areas, such as most areas of California , the conforming loan limit is $729,750. The best interest rates are offered on conforming loans. Jumbo loans – those that exceed $729,750 – are more expensive and can cost a quarter-point to a full percentage point more.

· Fannie Mae and Freddie Mac also have added a quarter-point “adverse market delivery charge” due to declining home prices. They also have instituted “risk-based pricing,” which raises fees on borrowers with credit scores of less than 720. Borrowers purchasing a condominium and putting down less than 15 percent also will pay more for a Fannie Mae or Freddie Mac loan.

· Borrowers with a down payment of less than 20 percent also are required to take out private mortgage insurance. Premiums have increased in most parts of the country, including California .

· Consumers without a 20 percent down payment may be eligible for a mortgage loan through the FHA, which accepts down payments as low as 3.5 percent. The FHA charges an upfront mortgage insurance premium of 1.75 percent, which can be added to the loan, in addition to a monthly premium