Like any first-time homeowners, Ken Glufling and his family were ecstatic.

After saving for years, Glufling, 34, got word in December that his application for a low-interest loan from the Virginia Housing Development Authority had been approved. He planned a mid-January closing on the three-bedroom house in a Prince William County subdivision which he proudly boasts is "a showcase for the neighborhood." By agreement with the seller, the Gluflings had already moved in.

But in early January, the rug was abruptly pulled out from under Glufling's best-laid plans. Although his mortgage had been approved, his application for insurance on the mortgage from a private company -- required for borrowers who make less than a 20 percent down payment -- had been rejected.

"It was devastation, despair," Glufling recalled. "I was afraid to even tell my wife, to be honest." As it turned out, the Gluflings' dilemma is hardly unique. With mortgage insurance companies around the country feeling pinched by rising numbers of defaults, the insurers have tightened their requirements, according to Steve Calos, spokesman for the Virginia housing agency. But without the mortgage insurance, the mortgages the state agency offers to low- and mid-income residents are worthless.

Virginia officials now say they have found a solution to the problem with a new arrangement which will allow Virginians borrowing from the state authority to insure the loans through the Federal Housing Administration and the Veterans Admistration. Both agencies have less restrictive terms for insuring mortgages than most private companies. "We and a lot of our customers were getting blindsided regularly," Calos said.

Because of conservative lending practices, Calos said Virginia Housing has had a low percentage of defaults on its mortgages, about 2 percent compared with more than 5 percent on mortgages nationwide. "Because of experiences private insurers have had in other states, they started getting a lot tougher on everyone," Calos said. " . . . That causes a bit of heartburn for us, because we are here to help people as much as possible."

For the Gluflings, the changes came too late. Due to delays in getting mortgage insurance and mistakes on the part of the first loan company he dealt with, Glufling said, he was forced to go to a second mortgage company, which is arranging both a loan and insurance through FHA. Glufling said the higher rate on the FHA loan -- 10.5 percent compared with Virginia Housing's 9.62 percent -- will cost him an extra $100 a month in payments.

But the state agency's changes will make it easier for other Virginians seeking VHDA loans.

Virginia Housing used to require a down payment of 5 percent of the sale price of a house. If a lender takes mortgage insurance through FHA, Virginia Housing now will require only a 3 percent down payment on the first $25,000 of a house's sale price, and 5 percent for the rest, Calos said. Buyers eligible for Veterans Administration insurance may not need to make any down payment.

Virginia Housing now also will allow borrowers to finance the closing costs on their house.

Calos said the agency rejected the idea of offering its own mortgage insurance, in the same manner as FHA.

"We've looked at that, but it is impossible," he said. "There's a lot of things involved from a legal standpoint. . . . We're a big outfit, but we're not that big."

Virginia Housing was established in 1972 as a self-supporting state agency charged with stimulating the construction and rehabilitation of housing for low- and moderate-income residents.

Borrowers must be buying their first house, although this requirement is waived in certain districts, including some neighborhoods in Arlington County and Alexandria, where the agency is trying to encourage the revitalization of older neighborhoods, Calos said.

In Northern Virginia, to be eligible for a Virginia Housing loan, a person must not make more than $41,200 a year if buying a new or substantially renovated house. The house may not cost more than $104,200.

For older houses, the maximum allowable income is $36,500. The property may not sell for more than $90,300. Virginia Housing loans are offered through private banks, savings and loan institutions and mortgage companies.