FHA Revises Policies and Opens Doors for First-Time Home Buyers

FHA loosens restrictions on high-risk borrowers
A revision of FHA policy may make it possible for lenders to approve more first-time home buyers.
Photo credit: Andrey Popov (c) Can Stock Photo

As owning a home has become more affordable than renting, many renters are eager to make an investment in the market and in their own future. Though most of these prospective buyers could easily handle the monthly mortgage payment, based on the already high rental rate they are paying, the one thing holding some borrowers back is their FICO credit score. The lower the score, the higher the risk a lender is taking by extending a mortgage.

Many first-time home buyers are counting on taking advantage of a low interest, low down payment FHA loan. The minimum qualifying credit score for an FHA loan is 580, but according to Kenneth R. Harney, for the Boston Herald, the reality is that lenders have historically refused to consider borrowers with a score lower than around 620, due to the penalties associated with approving too many high risk loans within the same geographic location. However, the FHA recently revised this policy to give lenders more leniency in areas with a high concentration of would-be first-time home buyers. Clem Ziroli, Jr, President of First Mortgage Corp in Ontario, CA, sees this as a positive move, and is quoted by Harney in the article:

“This is going to really open the doors — I think it’s a huge step in the right direction…There are a lot of people out there who have good credit but low FICO scores simply because they lost their jobs during the recession [and got behind on paying bills]. They are working two jobs. They’ve been slowly rebuilding their credit and have been saving money for a down payment. They are good risks.”

FHA loans are popular among first timers because they are the easiest type of mortgage loan to qualify for, but in the years since the housing bubble burst, lenders and government agencies have become increasingly strict when it comes to approving high risk borrowers. This revision is expected to open the door for possibly up to 100,000 new borrowers per year, who would not previously have been considered (Harney).

You can read more about FHA mortgages, apply online, or talk to an expert at goldenstatemortgage.com.

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