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New Credit Score Rules For Home Loans From The FHA

By Sally Maison
Published: Sunday, February 7th, 2010

The economic climate right now is severely conservative. This is most easily seen in the increase of savings among consumers and the moving away from excessive spending. In the case of banks and lenders, conservative lending has become the norm, a very worrying trend for consumers with cash flow problems.

New Credit Score Rules For Home Loans From The FHAIt is quite understandable why banks and lenders have begun to tighten there drawstrings when it comes to lending to consumers. While, during the years of lax lending, banks and lenders made huge profits, they also courted bankruptcy when the economic crisis which peaked last year hit. No one wants to see that happen again, least of all banks and lenders.

Unfortunately for consumers, when lenders get conservative, they have fewer avenues to turn to when they encounter cash flow problems. With tightened lending constraints, consumers will have to deal with more hoops and comply with more requirements to have their loan approved. It is also much more likely that consumers will have to end up paying more for their loans.

Case in point is the new credit score requirements that the Federal Housing Administration (FHA) is implementing for consumers who are looking for a home loan.

By far, credit scores are the biggest stumbling blocks for consumers who are looking to apply for a loan. Credit scores are basically a measure of how well a consumer is at paying his or her loans. Credit scores drop when a consumer fails to pay a loan on time and goes up when he or she is able to keep up with the payments. Considering that during the past year many consumers found themselves unable to pay their debts, most commonly their credit card bills, high credit scores are at a premium at the moment.

Bad news then for many consumers who got hit hard last year and saw their credit scores drop because, this summer, the FHA will be requiring a minimum FICO credit score of 580 when a consumer wants to apply for the 3.5% down payment program of the agency. Consumers whose credit scores do not quite reach the limit will not be able to avail of the program. They will instead have to make a 10% down payment on their mortgage.

The FHA is changing their requirements as part of their efforts in solidifying their capital reserves while pushing for some risk reductions. Aside from this, the FHA is also introducing changes in their guidelines for up front mortgage insurance premiums.

Despite these changes, the commissioner of the FHA, David Stevens, assures consumers that the FHA will continue to be the biggest source for financing home purchases for “underserved communities”.

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