FHA Loan Problems

The FHA tightened lending guidelines in January 2009 and again one year later.

As the world's leading government insurer of mortgages, the Federal Housing Administration protects lenders against homeowner default on more than one-third of the country's loans. Despite the many benefits of its government insurance programs for lenders, borrowers still have problems acquiring FHA loans.

History

The FHA has helped borrowers with low to moderate incomes acquire home financing since 1934 and has adjusted its guidelines according to market trends throughout the years. In January 2009, however, the FHA increased the down payment requirement from 3 percent to 3.5 percent. Then, in January 2010, the FHA established a minimum credit score of 580 in order to qualify for the 3.5 percent minimum down payment and stipulated that those with a credit score below 580 must put down at least 10 percent.

Features

FHA features a unique appraisal inspection requirement. Only an FHA-approved appraiser can inspect the property. The appraiser may require certain repairs of problems that affect health and safety to meet FHA's minimum property standards for insurance. The homeowner must make the repairs and pass re-inspection before the transaction closes and FHA insures the loan.

Effects

For sellers, FHA's stringent minimum property standards can add to the costs of selling your home to borrowers with FHA loans. For borrowers, the process requires full documentation of income, assets and credit. Any missing or unverifiable items are subject to rejection for insurance.

References

• American Public Media: FHA Loans Are About One-Third of U.S. Mortgages
• HUD: FHA History
• Bankrate: FHA Loan Costs To Increase