Is a FHA Loan More Difficult?
FHA loans are mortgage loans that are insured through the Federal Housing Administration. Lenders who are FHA-approved are generally able to follow more relaxed lending guidelines when underwriting mortgage loans. In the past, FHA loans were considered a safe haven for borrowers who might have difficulty getting approval for conventional mortgage loans. With stricter guidelines since the credit crisis that began in 2007, even FHA loans could be more difficult to get for some borrowers.
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FICO Scores
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If you have challenging credit, you may find it more difficult to qualify for an FHA-backed mortgage loan. According to Bloomberg.com, the FHA did not originally impose a minimum credit score to qualify for a loan, but recent changes mean that borrowers who do not have at least a 500 FICO score may not qualify for a loan. Many lenders who purchase mortgage loans insured by the Federal Housing Administration have instituted a minimum FICO score of 620, while major lenders like Wells Fargo and Bank of America will not buy FHA-insured loans unless the borrower has a minimum credit score of 640.
Higher Down Payments
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Traditional bank loans typically require borrowers to put down a substantial down payment anywhere between 20 and 35 percent of the home's purchase price. While FHA-insured loans still offer a reprieve for buyers who are unable to save that much in down payment funds, down payment requirements have become more stringent in recent years. Handsontheheartland.com notes that FHA borrowers with credit scores between 500 and 580 will be required to put down as much as 10 percent of the home's purchase price. Borrowers with credit scores more than 580 may still qualify for a loan with as little as 3.5 percent down, however, it those same borrowers used to be able to qualify for a zero-down loan.
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Reduced Seller Concessions
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In some real estate transactions, the mortgage contract may be structured to include a seller concession to pay for the closing costs or provide cash back to the buyer at the closing table. In the past, a buyer could request as much as 6 percent of the home's purchase price. New standards as reported by handsontheheartland.com, limit seller concessions to a maximum of 3 percent of the purchase price.
Strict Home Guidelines
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FHA loans can also be more difficult when it comes to selecting a home for purchase. Limitations on the maximum purchase price have made it difficult for some borrowers to qualify for FHA loans in more expensive real estate markets where home prices may exceed the national average. In some cases, a home will not be insured by the FHA because of its condition, and some properties will not be insured without a rigorous home inspection to verify that the property meets all FHA standards.
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References
- Photo Credit housing image by david hughes from Fotolia.com
