Several changes to FHA loans will take effect tomorrow, October 4, 2010. The Upfront Mortgage Insurance Premium will be reduced by about 55% on many loans. All FHA loans will see the monthly mortgage insurance premiums rise by around 60%.
Starting tomorrow, for the very first time, HUD also has credit score minimums that will go into effect. Prior to tomorrow, HUD has never had a credit score minimum. Lenders, however, have their own minimum credit score requirements.
From a qualifyingperspective, one of the biggest changes is coming directly from lenders. Many lenders have made their own announcements regarding credit scores. Beginning tomorrow, borrowers with credit scores of 620-639 will be getting a higher interest rate than those borrowers with 640+ scores. This change will typically increase the borrower's interest rate by around .25-.50%.
Some mortgage lenders have announced that they will raise their minimum credit score required for FHA financing from the current 620+ up to 640+ beginning tomorrow. Those mortgage companies doing so will no longer issue mortgages to borrowers with credit scores 639 and under.
Most mortgage companies have had a 620+ minimum credit score for the last 1 - 1 1/2 years. Changes like this are directly tied to the payment performance of the mortgages issued to borrowers with credit score credit scores under 640. Mortgages issued to borrowers with 620-639 credit scores still continue to perform worse than their peers with higher scores.
Some people outside of the mortgage industry will argue that these changes will further limit sales. Yes, it will. None of those people, however, will actually incur any losses themselves when a borrower defaults on a mortgage. It's easy to be on that side when you you will not have to bear the cost of the loss.
The reality is that if those borrowers are not going to perform and stand a significant chance of going into foreclosure, then those loans do no need necessarily need to be approved. Yes, there are borrowers with 620-639 credit scores that will pay their mortgage on-time. Everyone needs to keep in perspective that they already have some credit issues if their scores are that low. Home ownership is still something to be earned. It is not a right for everyone. Some people are just not responsible enough for home ownership.