The government mortgage rules are changing for FHA refinance and home purchase programs.  The Federal Housing Administration announced tightening of FHA lending requirements to reduce risk and improve its reserves. The new FHA guideline changes include:

• Borrowers must pay an increased upfront mortgage insurance premium (MIP) of 2.25 % of the loan amount (increased by 50 basis points from 1.75 %). FHA has also requested legislative authority to increase the maximum annual MIP so it can reduce upfront costs for prospective home buyers.

• For borrowers with poor credit (credit score of below 580), they must make a minimum down payment of 10 % (up from 3.5 %).

• Seller credits for closing costs are cut by 50 % and cannot exceed 3 % of the purchase price.

• FHA will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

With the current recessionary economic state, constricting mortgage availability, and general credit crunch, FHA loans have exploded, with projections of hitting $400 Billion in 2010. FHA loans, featuring low down payments, competitive interest rates, and more forgiving credit requirements, have proven the loan of choice for many first time home buyers and those with marginal credit scores.