Contrary to what was normally believed, there has always been no minimum credit score for an FHA loan. That was the case until the recent news that sent a shock among mortgage loan borrowers. On July 16, 2010, the Federal Housing Administration declared the new rule amidst the changing economic situation in the United States. This rule stipulated that 500 should be the minimum credit score for an FHA loan.
The FHA, which is operated by the Department of Housing and Urban Development, initiated this move in spite of the recovering economy after the near collapse of the United States economy in the late 2000s. The FHA has never required any minimum credit score for an FHA loan before.
Although announced midyear, the move had been initiated during the second quarter of 2010. Surprisingly enough, the majority of the loans of that period were given to borrowers with credit scores of at least 620. Furthermore, borrowers with credit scores below 580 only make up less than 1 percent of the approved borrowers of that period.
The move was enacted to reduce the risks related to loan doling without any FHA loan credit score requirements. The move was also meant to strengthen the financial reserves that insure those loans. This has been a critical step for the government in strengthening its drive to recover from the housing crisis of recent years.
For years, the Department of Housing and Urban Development has shown increasing concern regarding the number of borrowers that have refused to pay for housing loans and mortgages. While the defaults have increased in number, so have the rates of generally all mortgage loans.
Since the mid 2000s, the number of delinquent loan mortgage payments has increased to up to almost 94%. The lowest of which was almost 91% during the month of January 2009.
These defaults have almost used up all of the reserve money managed by the FHA. This reserve is funded by payments of insurance premiums. With the worsening situation of the housing loan payments, the government realized that there was more need to control defaults.
Knowing the gravity of the situation, the FHA planned to require FHA loan credit score requirements. The first proposed idea was to require a 10 percent down payment for borrowers with at most a 580 credit score.
The second proposal was to decrease the concessions of home sellers to less than 3 percent of the selling price. This would motivate the buyers to work harder for their home.
Before these proposals are put into fruition, the FHA has imposed that 500 should be the minimum credit score for an FHA loan. Although this might seem unfair for borrowers that never had the chance to borrow from the FHA when there was still no minimum credit score for an FHA loan, the new rule is still put into place to protect all borrowers nonetheless.
[I]f you’ve recently graduated or plan to this summer, you may be planning to enter the world of being an adult. You’ll get a job, maybe an apartment and car, and probably open a bank account if you don’t already have one. You may also decide to get a credit card with your new income. […]
[W]ith summer comes plans for weddings, big beautiful bouquets, a gorgeous wedding dress, garden ceremony and many other unique plans. Of course, each of these items cost money, which can add up to thousands of dollars. What many couples fail to plan for as they dream of their wedding is how to start out marriage […]
[E]ven those with full-time jobs often end up struggling to pay their bills and protect their credit rating. They live paycheck to paycheck with barely enough left over to last until the next payday. With reports of the economy improving and a low unemployment rate, this may not make sense. One theory is that shifting […]
[P]eople look forward to summertime partially because they have a vacation planned. It’s a chance to get away and take a break from the stresses of life. Unfortunately for those who live on a tight budget, coming back from vacation may be a dose of reality they would just as soon forget. You can imagine […]
[I]f you’re about to graduate college and enter the workforce, you want to start out on the right foot. It’s all too easy to get caught up in the idea of a steady paycheck and make some bad financial decisions. Here are a few things you should do about your finances before you graduate. Think […]
[Y]ou have a bill to pay and you don’t have the money. Or your car broke down and you don’t have the extra funds to pay for the repair. One way to come up with cash when you need it is to sell something you own. However, it’s not always as easy as it sounds. […]
[A]s a teenager and even college student, you probably had your parents looking out for you. They helped with expenses even if you had a part-time job. Now that you have entered adulthood with a full-time job, you feel like a grownup. But have you grown up financially? You Know How to Budget A person […]