In the past few years, the Federal Housing Administration has been increasingly busier, as more and more home-buyers are looking to them for financing resources. Those who are strapped for readily-available cash to put towards the down payment of a home, they are looking to FHA for assistance, which has in turn given the FHA a 27% increase of presence in the market.
The FHA is currently in the red for a congressionally-mandated minimum for reserve funds, and they are looking to increase the minimum down payment amount and insurance rates on mortgages to help rebuild their stash. Before, the minimum for a down payment is 3.5% of the home's sales price but legislation has been introduced to require a 5% down payment, however it has been suggested to increase the rate ever further to a whopping 10%! FHA argues that having a 10% requirement would slash their core value, assisting those of modest means. The current 1.5% increase that is already introduced would weed out a sufficient amount of borrowers to help the FHA keep their head above water, without wiping out an entire class of clientele.
Lenders charge a small percentage (1.75%) of the loan amount for mortgage insurance and an additional fee for an annual premium, ranging between .5% and .55% of the total loan amount, but installed in monthly mortgage notes. Congressional limitations for mortgage insurance rates is 2.25% and for the annual premium, it's 3%. This leaves the FHA plenty of room to increase their percentage charges and up their revenue. If the FHA could choose just one of the two solutions, the increase in charges would have a softer blow to strapped borrowers than would the increase in mandated down-payment amounts.
As far as credit rating goes, the FHA is the most lenient amongst its competitors regarding borrowers with a not-so-impressive credit score. The FHA doesn't even have a minimum credit rating a borrower must meet in order to become eligible for such a loan, which puts the FHA at a higher risk for loss. It has been suggested that the FHA create a tier system so that borrowers with lower credit ratings have to pay a higher down-payment, and lessen the down-payment required for those with better credit scores. This would significantly reduce the risk of delinquencies, foreclosures and overall monetary loss for the FHA.
The Federal Housing Administration is adamant about continuing to help those who can't get financing through local lenders, however as the days go by, being eligible for even an FHA loan is becoming a tougher task.
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