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There have been a lot of changes afoot in the mortgage industry, as anyone who watches television or uses the internet already knows. As the demand for Mortgage Backed securities shrinks, the industry at large is attempting to bring a higher level of quality to their pools of loans. What this means to you, the homeowner or prospective homeowner, is that the mortgage industry is demanding higher levels of credit history, as well as more rigorous income, asset and employment documentation than they have in many years.

What is also happening is that Loan to value ratios or "LTV's" are becoming more restricted as well. Where there used to be a fairly wide variety of 100% LTV programs available (100% Loan to value = the loan is equal to 100% of the purchase price) they have been steadily shrinking in 2008. Most of the remaining zero down loan programs were made available by virtue of the Mortgage Insurance industry. A mortgage Bank would be happy to lend 100% of the value of the property if the borrower funded an insurance policy that protected the bank in the event of a default. For instance, someone borrows $200,000.00 to purchase a $200,000.00 property and then loses his job and has to go into default/foreclosure. The mortgage insurance company would pay out 20-30% of the loss, and the Mortgage Bank would only have to recover the difference. So from their perspective zero down with mortgage insurance is not that different than a purchase with a 20% down payment.

As we are seeing most markets in the nation decline in value, the Mortgage Insurance companies will no longer insure a zero down purchase. Their attitude is: "why would we allow someone to borrow $200,000.00 to buy a $200,000.00 house, when there is a possibility that the house will be worth $195,000.00 in the near future?"

The result of this is that the Mortgage banks will only lend to the maximum amount that an insurance company will insure. And folks… that new magic number is 97.

So the maximum insurable LTV is now 97…. The new Minimum down payment is 3%. Heck, even the Oregon Bond loan which used to dispense a 3% cash grant to cover your down payment has been temporarily suspended. (the other OR Bond program "rate advantage" is still available however… but it will require a 3% down payment).

So this is simply our new reality. 3% is the new 0%. I believe, that until we see national appreciation trends move up again for a sustained period of time, this 3% minimum is here to stay.

I have been researching a new loan program that is a 97% loan with mortgage insurance that will allow for a Grant loan from a National non profit to pay for the down payment, and closing costs. It seems to be the last remaining zero down loan available, we'll see how long it lasts.