In the real estate world there are lots of reasons that deals fall through. Utah Real Estate transactions fall through all the time because the home inspection comes in unacceptable, or the borrower is unable to get financing. Well now there is a new exciting way for transactions to fail: Failure to Qualify for Mortgage Financing.

Mortgage Insurance is essentially “Foreclosure Insurance.”  Borrowers who don’t have a sufficient down payment, usually 20%, must pay for this insurance in order to qualify for a home loan. Mortgage Insurance usually has both an up front premium as well as a monthly payment amount. This insurance money protects the bank in the event that properties default and foreclose.

With all of the turmoil in the real estate market, mortgage insurance companies have taken a beating. They are losing lots of money and many have gone out of business. They never contemplated that the number of short sale and foreclosure homes would ever reach the point that they are at. For this reason, the mortgage insurances are taking a lot more caution regarding who they will give mortgage insurance too. They don’t want any more default loans. In addition to higher premiums, Mortgage Insurance companies are now verifying appraisals. If they don’t like the com-parables the appraiser used, they can and will dill deny the applicant mortgage insurance.

So just because your appraisal came in at the purchase price value, doesn’t mean the deal is good to go. You just don’t know if you can really get financing until the mortgage insurance has been approved.

A colleague of mine recently had this happen. The appraisal came in just fine, but then the mortgage insurance company denied the MIP issue. The deal fell through and the house wasn't purchased.