FHA Home Loan Programs | FHA Loan Blog

2011 FHA Loan Guidelines and Credit Requirements

09.15.10

The Housing of Urban Development (HUD) has made it clear that in the FHA credit standards are changing for 2011. HUD and the Obama administration have several goals they have outlined to improve the credibility of their flagship FHA home loan programs. The first goal is to bolster the FHA loan reserves and the second goal is to reduce loan defaults and foreclosures.

In order to accomplish these goals, HUD must tighten the FHA guidelines and increase the accountability for FHA lenders with more comprehensive FHA loan requirements. FHA credit score minimums have never been enforced in the past because HUD always prided itself that the FHA loan guidelines enabled underwriters to consider a borrower for government financing based on all of their credentials rather than just a credit score.

* Higher Down-Payments for Bad Credit

* FHA Credit Score Minimums

* More Equity for Refinancing w/ Bad Credit

Is this End of Bad Credit Home Financing for FHA?

* Minimum credit score at or above 580 are eligible for maximum 97.5% Loan to Value for FHA financing (3.5% down-payments required with purchases).

* Minimum credit score between 500 and 579 are restricted to 90% Loan to Value for FHA finance options (10% down-payment required).

* Minimum credit score of less than 500 are not eligible for FHA- mortgage loans insured by the government.

* FHA borrowers with a non-traditional credit history or insufficient credit are eligible for maximum financing if they otherwise meet FHA guidelines.

* Borrowers using 203(h), Mortgage Insurance for Disaster Victims, are eligible for 100% mortgage financing and no down-payment is required. However, FHA borrowers must have at least a 500 credit score to be eligible.

FHA Lenders Lowering Closing Costs

08.02.10

There has been a lot of talk about FHA home loan programs in recent months. It has been no secret that HUD has tightened FHA guidelines in an effort to stem foreclosures and FHA loan defaults nationwide. The Federal Housing Administration already tightened the FHA streamline program so FHA customers can no longer finance closing cost with the streamline refinance loan. Many of the FHA borrowers with good credit have been able to find FHA lenders offering no cost FHA streamline refinance offers. This is the situation in which lenders are paying streamline closing costs in an effort to win the borrower’s business. In most cases no cost streamline loans are approved for borrowers that have a high credit scores and low debt to income ratios.

With FHA rates still be recorded at all-time lows it’s hard to understand why low fixed mortgage payments are not enough of a motivation for first time homebuyers. Yet sluggish reports continue to be reported weekly with low FHA purchase loan activity. The housing sector continues to wait to see if the home buying market can rebound since the expiration of the first-time homebuyer tax credit. The FHA has remained aggressive with the FHA loan guidelines as borrowers still only need to come up with 3.5% of the down-payment.

The FHA has promised to lower allowable seller concessions (the percentage sellers can take from the sales price of a home to fund closing costs). FHA will reduce seller concessions from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set. The FHA closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. FHA down payment assistance is not included as a closing cost.

FHA Home Loan Credit Policy for Bad Credit at Risk

07.16.10

What was at one time a green light for bad credit mortgages may be at risk as HUD considers incorporating minimum fico requirements for FHA home loan programs for both purchase and refinance products. HUD contends that their oversight committee will implement a minimum credit score requirement of at least 500 for FHA loan approvals. Borrowers who are plagued with bad credit would likely be hindered by HUD’s policy mandate of applicants to have credit scores higher than 500 for FHA-home loan requirements. Believe it or not, FHA has never had credit score requirements factored into the FHA underwriting guidelines. According to Michael Fratantoni, of the Mortgage Bankers Association “It really is just reforming what FHA lenders and FHA loan guidelines have been doing for quite a while.” FHA lenders had instituted their own minimum credit score requirement and many loan professionals did not know that Fico score restrictions did not come from The Federal Housing Administration.

FHA has implemented several changes in regards to FHA requirements for mortgage companies to be approved to offer FHA loan programs. This government finance giant has tightened FHA loan guidelines and made significant initiatives in an effort to reduce the risk of FHA loan defaults and home foreclosures across the nation.

According to HUD Commissioner David Stevens, they have made a concerted effort to enhance the public perception for responsible lending while also boosting FHA loan reserves that act as insurance for non-performing mortgage loans. It is clear that the HUD Commissioner believes that the entity can carry out their plan to protect the FHA loan reserves that the likelihood of FHA to continue to offer affordable home financing programs is good. FHA has been helping first time home buyers become homeowners with affordable low rate FHA loans since 1934. It is no secret that HUD has been concerned that the FHA loan programs was in jeopardy of becoming extinct because of poor loan performance and loan companies pushing their subprime mortgage candidates to the FHA loan products. A few years ago, FHA loan delinquencies started to increase, but so have defaults for nearly all types of home loan products. Conventional, jumbo, home equity and even VA loan defaults have all risen over the last few years. FHA loan policies continued to play an important role in helping our economy rebound as they remain the biggest advocate for affordable home financing and fair lending.

FHA Loans Improve Performance

06.23.10

The FHA loan defaults have been rising the last few years and the FHA reserves have dipped to dangerous levels. The FHA refinance loans continue to play a major role in helping borrowers with adjustable rate mortgages convert to a fixed interest rate loan that provides a more affordable monthly payment. A lot of work has been done to improve FHA home loan programs and reduce the FHA foreclosures. The Federal Housing Administration have worked with FHA lenders and it appears they have made the necessary changes in the FHA loan programs to reduce the risky FHA mortgage loans and get back on the path for a healthier financial outlook for this government run mortgage program. Last fall industry analysts had forecasted weak performance for FHA loans in 2010, but the portfolio performance has been much better. The Housing and Urban Development Secretary Shaun Donovan made these comments as the Obama administration renewed their commitment to stabilize the housing market.

Notable Changes to FHA Loan Programs

FHA Streamline Refinance – FHA changed the streamline guidelines to not allow borrowers to refinance lender closing costs. If borrowers want the FHA streamline, they will have to pay for closing costs out of their pocket.
FHA Home Loan – FHA increased the down-payment requirements from 3% to 3.5%.
FHA Cash Out Refinance –FHA reduced the LTV from 95% to 85%, so borrowers who want to receive cash in their refinance must have at least 15% home equity left after the refinance loan.
FHA 203K – Home Improvement Financing has been expanded for home rehabilitation and energy efficient initiatives.

Delinquencies on FHA-backed loans did increase to 12.4% in May from 11.7% in April, but were lower than the13.6% from the previous year. Donovan said, “Overall FHA loan performance is somewhat better than was predicted when the actuarial review was completed” in the fall of 2009.” However, the Home Affordable Modification Program (HAMP), offers incentives to FHA lenders to modify loans for distressed homeowners, has been widely criticized because the results have been so poor. The recent HAMP statistics released Monday show that slightly more than 10% of eligible borrowers received a loan modification that became permanent.