FHA Loan Requirements Are Changing

Jul/12/2010 11:19 PM Filed in: HomeownerResource Guide
FHA Loans
FHA Loan Requirements Are Changing

FHA reform is changing the rules for securing an FHA-insured mortgage loan, but FHA loans still provide the best opportunity for those who don’t meet the requirements of a traditional home loan.

By now we're all pretty used to reform. We've seen health care reform, credit card reform, financial reform—all within the past year or so.

So it should come with little surprise that mortgage loans insured by the Federal Housing Administration (FHA) are now facing reform as well. Early this summer, the House of Representatives passed the FHA Reform Act, which is also expected to pass the Senate. The reform comes as a result of the high number of mortgage defaults seen in the past few years, which has reduced the reserves of the FHA below legal limits. To rectify this, several changes are in the works.

What is an FHA-insured mortgage loan?
The FHA does not make home loans. The administration simply insures mortgage lenders against the possibility of default on a loan. The FHA program is mainly targeted towards first-time home buyers who might not otherwise qualify for a traditional home loan because of the high down payment and credit score requirements. (Whenever a borrower has less than a 20 percent down payment, lenders require mortgage insurance.) Currently the FHA insures nearly one-third of all new mortgages—up from just four percent in 2006.

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