If you are planning to apply for an FHA refinance or purchase loan, then don't believe the hype. Many believe that the FHA loan was designed for people with poor credit. I'm not sure how that got started, but I would imagine that it's probably due to the fact that FHA is more lenient regarding past derogatory credit. In addition, their underwriting is a little different. I'll explain that here in just a moment.
FHA eligibility requirements are not what they used to be, but yes they do underwrite with commonsense; meaning, that just because your credit score is low, doesn't mean that your credit is in the trash. However, they do have eligibility requirements which state that you must have a credit score of 620 or higher in order start with the 3.5% down payment on your home. If your score is at 580 or lower, than you will be required to put 10% down.
The FHA eligibility requirements did experience change, but the change is not necessarily a negative change. FHA became very aware that default on their loans was at an all-time high, and they really couldn't afford to take the hit anymore. So, FHA had to make changes that were beneficial to both them and the borrower.
FHA realized that when a buyer made very little investment in the home, they were more likely to default. This was not necessarily related to the investment, but statistics show that when the homebuyer didn't have the money to make the investment, the loan was shaky. In addition, they began watching gifting of funds very closely too. FHA just wants to know that the borrower is truly eligible to be taking the loan they are getting, and with no regrets to either party.
The FHA also ended up increasing their mortgage insurance as a result of the increase in defaults on loans. Instead of 1.75%, it has gone up to 2.25%, which FHA says won't make that much of a difference in the borrower's payment. Many consumers were frustrated feeling as though they needed some sort of help since we as the consumer aren't getting a bail out. We have watched corporations stand by and get their problems resolved, only to stand by again and watch them go it again! So, for many this was the icing on the cake of frustration.
If you are interested in buying a home or refinancing, and you would like to know more about FHA, you can visit www.fhaloansnow.net.
