New FHA Loan Requirements: Four Things You Need to Know

By Barbara Marquand
Mortgage Credit Problems Columnist

Later this year, it will cost more to get an FHA mortgage, and you'll have to make a higher down payment if you have bad credit.

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The Federal Housing Administration recently announced new mortgage requirements for borrowers. The changes are designed to protect borrowers from taking out loans they can't afford and to boost the program's reserve funds and improve the administration's ability to balance risk. FHA loans, which now account for almost a third of all mortgages underwritten today, are provided through private lenders and insured by the federal government.

Here are the changes you need to know:

1. FHA Mortgage for Bad Credit: Higher Down Payment Required

If you're thinking about applying for an FHA mortgage later this year, start saving for a down payment. Starting in the summer of 2010, you'll have to have a FICO credit score of at least 580 to qualify for a 3.5% down payment, versus the previous threshold of 500. If your credit score falls below 580, you'll have to pony up at least 10%.

2. Higher Mortgage Insurance Premium

Starting in the spring of 2010, you'll pay more for the FHA mortgage insurance premium, which goes toward funding the federal guarantee for the loan. FHA plans to increase the upfront premium by 50 basis points to 2.25%, and it will ask Congress for approval to increase the annual mortgage insurance premium. You don't have to pay the upfront insurance premium all at once -- you can finance it as part of your mortgage.

3. FHA Loan Closing Costs: Cap Lowered on Seller's Concessions

Sellers won't be able to pitch in as much money toward your closing costs as before. Starting this summer, the cap on sellers' concessions will drop to 3% from the current 6 percent of the home's price.

4. Further FHA Loan Changes Proposed

The FHA says it will continue to review its response to the housing market and evaluate its mortgage insurance underwriting standards as well as measures to help borrowers who are underwater on their mortgages. Meanwhile, legislation is pending in Congress to tighten standards for FHA loans further. Rep. Scott Garrett, a Republican from New Jersey, introduced legislation to increase the down payment requirement for all borrowers to 5%. He told US News and World Report that the recently announced FHA changes were "a good start."


http://portal.hud.gov / http://www.foxbusiness.com / http://money.cnn.com/ / http://www.usnews.com/

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