Feb 17, 2010

FICO scores and the FHA

The aftermath of the credit crisis is going to have some serious implications on the FICO scores of those getting FHA insured loans. These changes are expected to come in to force in the summer of 2010 and could mean different things to different people as it relates to the cost and affordability of mortgages and most important as it relates to this post - the credit worthiness of the borrower.
  • Higher insurance requirements – this change requires that an upfront mortgage insurance premium required of a borrower would be raised from 1.75% to 2.25%.
  • Larger down payment – only those borrowers with FICO scores about 580 would qualify for the low 3.5% down payment. Those borrowers with a score lower than 580 would need a down payment of at least 10%.
  • Lower seller concessions – this is the money returned to a borrower in exchange for agreeing to a higher home sales price. This seller concession would drop from 6% to 3%.
  • Higher minimum FICO score requirements – in addition to needing a minimum FICO score to qualify for the lower down payment option, it may be difficult for a borrower to even begin the process with FICO scores below 600. This higher FICO score requirement is not limited to FHA loans, but is being adopted throughout the mortgage industry; what was once a fair FICO score may now only be considered a poor score.
PrivoCorp (www.privocorp.com) is a large (and fast) processor of FHA loans - but we have not seen a whole lot of scores around the 580's. Probably an indicator of the type of clients we work with. Anyway, these are steps in the right direction - to get loans to deserving people at lower costs. Am sure these new changes will effect some genuine folks who have seen their credit score go down due to the down turn in the economy and consequent unemployment, but unfortunately, that's the way the world works.

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