How FHA New Guidelines Affect You

Over the course of the past few years, the Federal House Administration has implemented a number of changes to home loan rules. At first, many observers expected severe rules and difficulties for many home buyers. Thankfully, the new rules and conditions are not as bad as originally considered. They also seem very well-made to improve the housing market for lenders and buyers alike.

These changes help improve the FHA's ability to provide low interest home loans and continue to allow the agency to provide more loans to more people.

End of 2008:

580 was set as the minimum credit score. The down payment help program (Nehemiah) was ended. Down payment minimums were set to 3.5%.

Beginning of 2009:

The minimum credit score was raised again. This new standard was set at 620.

Late Fall 2010:

Further insulating the agency from high risk, the minimum score was raised to 640.

There were three main changes to the standards:

High Mortgage Insurance Standards; Private mortgage insurance, or the mortgage insurance premium, was raised from 1.75% to 2.25%. This causes a slight increase in monthly payments, but it is not considered a burden by industry experts. It is paid along with the loan, spreading out the costs over the loan lifetime.

This was implemented in April of 2010.

Down Payment and FICO Scores; The minimum score standard qualifies a purchaser for the small 3.5% down payment option. Buyers with a lower credit score may still qualify, but will be required to pay 5-10% down on the home. This reduces the risk for the FHA, while leaving low down payment loans available to buyers with a good credit history.

Reduced Seller Closing Offers; Sellers now can only provide half as much towards closing costs. Under the old policy, the person selling the home could provide up to 6% in closing cost assistance. The recent changes only allow a 3% contribution.

Rounding out these new rules, fresh standards were drafted for lender enforcement. Some homeowners will be affected more than others by these changes. Low income purchasers and those with an uneven credit history will be most burdened. However, the average home purchaser benefits greatly from these new policies.

Overall, these changes fulfill FHA's mission to provide low-cost loans and increase homeownership. They reduce the risks of lending and increase available capital. With higher repayment rates, the FHA will be able to offer more loans over the long term.