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.
If you are just starting out on your own, you may have a hard time getting credit cards or loans because of a lack of credit history. You must build credit to get access to the best credit cards and loans, but you can mess things up if you don’t know how to do it […]
One of the worst feelings you can have is when you have a bill coming due and no way to pay it. You have either spent all of the money or you have to spend it on something more important. You don’t want to have to deal with those phone calls from creditors because you […]
[Y]ou open up the credit card statement only to see another $30 late payment fee assessed. Ugh! You can’t believe you forgot to make a payment on time again. In between running the kids to daycare or school, meeting with clients and taking care of errands on the weekends, some things just get pushed aside. […]
[G]etting approved for a credit card is a sign of responsibility. It can give you freedom with your finances. For instance, you can book a hotel or buy airline tickets, which would be difficult without a card. You should know why you want a credit card and understand if those reasons are good or bad. […]
You hear financial experts preach about getting out of debt. They tell you to cut up your credit cards and pay for everything with cash. While some people may need to follow this advice, you may wonder if it’s the case for everyone. Should you avoid ever having any kind of debt again? Not Avoidable […]
[T]he busy summer season is behind everyone, and the upcoming holiday season is a few weeks away yet. Now is the time to focus on goals you have set. One of the most important is saving money. Fall = Transition Time You are transitioning from the lazy days of summer, times when you spent a […]
[W]hen you hear about identity theft, you may think about all of the public computers in use as well as the credit card machines in stores. While these are all areas that are vulnerable to hackers and those who want to steal your identity, one of the most dangerous areas is at home. Why? Because […]