The Federal Housing Administration has announced that it will raise the minimum down payment for its borrowers with low credit scores as well as make additional changes to stabilize the system.
To ensure its long-term financial success, increased down payments are one of many changes the FHA will be making. FHA is reeling from recent delinquencies. The agency that once backed 3% of mortgages now guarantees about 30% of them. As of December, 2009, over a half million of the agency's 5.8 million loans were delinquent. Though Congress mandates a 2% cash reserve, the actual reserves currently hover around .5%.
Borrowers with credit-rating scores below 580 who will be required to put down a required minimum of a 10 percent down to purchase a home. Those with a credit score above 580 will be required to come up with a 3.5 percent down payment.
The FHA will also increase upfront mortgage insurance premiums from 1.75 percent to 2.25 percent and tighten rules for lender banks. For most borrowers, this will have more impact than the higher score requirements.
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