New Credit Requirements for FHA Borrowers

New borrowers looking to obtain loans backed by the Federal Housing Administration have new credit score and loan to value (LTV) requirements according to an announcement from the Department of Housing and Urban Development on Friday.

Beginning Oct. 4th, borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing, while those with a FICO between 500 and 579 are limited to 90% LTV.  Consumers with a FICO score below 500 are not eligible for FHA financing said HUD.

The changes were unveiled earlier this year by FHA Commissioner David Stevens and are meant to strengthen the FHA’s capital reserves.

“These are the latest in a series of changes to allow the FHA to manage its risk better while continuing to support the nation’s housing recovery,” he said. “By protecting FHA’s capital reserves, we can continue providing affordable, responsible mortgage products and will remain the nation’s largest source of home purchase financing for underserved communities.”

HUD also said it wanted to reduce the amount of seller concessions from six percent to three and tighten manual underwriting guidelines.  However, the agency said it received 902 comments on the changes, with the majority related to the seller concessions and manual underwriting guidelines, so it’s continuing to review and consider the issues raised.

“HUD’s final decision on these two proposals will be addressed separately,” said Stevens.

The policy changes do not impact the FHA’s reverse mortgage program (HECM).

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