November 6th, 2015 6:31 AM by Jackie A. Graves
getting easier for home buyers to get approved for an FHA-backed home loan.
lenders are now approving FHA mortgage applications for borrowers
whose credit scores are 580 or better, a drop of 60 point as compared
to last year, when FHA lenders required credit scores of 640 or better.
are taking advantage, too.
to the Ellie Mae June 2015 Origination Insight Report, the average FICO on a
closed FHA refinance was down 6 points from the month prior,
to 677; and purchase FICOs average in the 600s, too.
news comes at a time when FHA loans are in demand. The program's 3.5%
downpayment minimum is among the most lenient for today's home buyers; and
underwriting requirements on an FHA loan are often loose.
Click to see today's rates (Nov 6th, 2015).
loans are an important component of the U.S. housing and mortgage market.
FHA loans are loans which are insured by the
Federal Housing Administration and made available to U.S. buyers and existing
The FHA was formed in 1934 and it exists to provide affordable
housing to Americans. Today, it's the largest insurer of mortgage loans
Federal Housing Administration doesn't actually make loans. Rather, it insures
loans made by the nation's banks, providing protection against default and
order to gain the FHA's protection, lenders must only make sure that the loan
in question meets the lending standards as set forth by the FHA.
FHA's rule book is known as "the FHA guidelines" and FHA
guidelines describe all allowable loan traits, as well as the going terms
of an Federal Housing Administration-backed loan.
example, FHA guidelines state that home buyers must make a minimum downpayment
of 3.5 percent against a home's purchase price; and that buyers can be cleared
to buy a home 12 months after a bankruptcy, short sale, or foreclosure.
also place limits on the size of an FHA-backed loan, which varies by county. FHA loan limits range from $271,200 for a
single-family home to $1,202,925 for a 4-unit home.
mortgage guidelines define which loans the Federal Housing Administration will,
and will not, insure.
U.S. lenders don't underwrite loans to the FHA guidelines as they're written,
to the letter. They impose additional restrictions known as investor overlays which
make it harder for an applicant to qualified for an FHA-backed loan.
such overlay is linked to the FHA Streamline Refinance.
to the official Federal Housing Administration guidelines, with an FHA Streamline Refinance, lenders are not
required to verify income, employment or credit scores. Yet, many lenders
choose to verify regardless. This is because the FHA penalizes banks for making
too many "bad loans" and verifications can cut down on defaults.
important overlay is linked to your credit score.
rules state that it will insure home loans for which the borrower has a credit
score of 500 or higher. Banks, however, are reluctant to make such loans.
credit scores of 500 are highly likely to default in the next 6 months, which
would negatively affect a bank's FHA default rate, leading to fines, penalties,
and perhaps, termination from the FHA insurance program.
in late-2011, most banks enforced a minimum credit score for FHA loans of
640. That minimum score has since been lowered.
home buyers can now get an FHA loan with credit scores of just 580. And, as the
domestic economy continues to improve; and, as U.S. housing regains lost value,
it's likely that the minimum FHA FICO score will drop again.
today's U.S. home buyers, the Federal Housing Administration mortgage is
among the most lenient and forgiving mortgage programs available. The program
requires a downpayment of just 3.5 percent and mortgage rates are regularly
lower than those for a comparable fixed-rate loan.
out whether you're FHA-eligible. Get today's rates now. Quotes are no cost, no
obligation, and don't require your social security number to get started.
Show Me Today's Rates (Nov 5th, 2015).
by DAN GREEN – To view the original
article click here