Changes comming for FHA

FHA has always had some of the lowest credit score requirements for mortgage loans. FHA was designed to promote homeownership for Americans who might not have been able to obtain traditional bank financing. Lately, FHA lenders have been increasing the minimum credit scores from no score to 620 for most lenders. There is talk now that FHA is going to start requiring higher credit scores maybe up to 640. FHA will do this because there are higher losses for credit score under 640 and they are being adversely selected for loans with lower credit score. Fannie Mae and Freddie Mac had loans similar to FHA but required higher scores. Over the last few years, Fannie and Freddie have stopped doing similer loans to FHA and have completely stopped doing any cash out loan above 80% loan to value. Until last year, FHA still allowed 95% cash out loans. Now FHA will limit borrowers from taking more than 85% of their property value out as a cash out mortgage. Since FHA was the only source for these types of loans, they were given all these loans and all the losses that came with them. Now FHA is getting in line with Freddie and Fannie and will be requiring higher scores and lower loan to value requirements for cash out loans.

Is this good? I think it is. What this will do is force borrowers to have better credit to have a home loan and also not tap into all of their home equity. Here at NOVA Home Loans we have a staff of credit analysts that will work with our applicants to educated them on how to increase their credit scores so they can be approved for home loans and to understand how to keep good credit scores. This is a free service that NOVA Home Loans provides. Contact me or your NOVA Loan Officer for more information.

Most lenders make their lending decisions on how well the loan will perform in the 1st 12-24 months. If a home loan performs well for the first 24 months, then the likelihood of the loan going bad is very little. Lenders know the biggest reason for home loans not performing is due to loss of employment. NOVA recognizes this and is the only lender that offers the SafeHouse Mortgage Protection Plan to our homeowners. SafeHouse is a program that assists homeowners in making their mortgage payments if they lose their employment. The program will also provide monetary assistance to members who experience a negative event that impacts their ability to pay their mortgage. Please contact me for more details.

These changes will not prevent people from being approved for a home loan. It will force buyers and homeowners to ensure that they are in a stable financial situation before they are provided mortgage financing.