Once again this week, FHA loan rates fall to record levels. Qualified borrowers can qualify for a 30-year fixed rate at 4.25%. Yet, HUD is considering even more changes to FHA guidelines for purchase mortgages and FHA refinance options. HUD has been talking about implementing a minimum credit score requirement of 500 for FHA mortgage loans. In regards to FHA purchase loans, borrowers with credit scores below 580 would be required to make a down-payment of at least 10% rather than the 3.5%. Many FHA lenders have already taken steps like these with minimum credit scores and higher down-payments. In regards to FHA refinancing, many lenders have been requesting more home equity in situations when the borrower’s credit is in question. FHA credit has always been paramount to FHA lending.
Will a Minimum Credit Score Requirement Hinder the Ability for Americans to Refinance with an FHA Mortgage?
Over the years, FHA credit has been a great alternative to subprime lending because FHA would consider borrowers with low credit scores if they had compensating factors. These types of FHA loans were manually underwritten and in most cases would be required to have cash reserves equal to at least one monthly mortgage payment. Rumor has it that HUD is considering reducing the ability for FHA refinance opportunities if the mortgage balance is greater than the home values.
HUD is set to roll out a few new policies that could significantly affect the way some FHA lenders originate mortgages nationally. FHA invited public comment on several of these policy changes in an effort to bolster FHA loan reserves. According to FHA Commissioner David Stevens, “Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important ” to FHA’s success.
