FHA Loans (min 3.5% down)Tightening guidlines .....Must lock in before January

Financing Alert! FHA Tightening Policies

Buyers May Not Qualify after January, 2010 ? Credit Scores Increased to 693

The Federal Housing Administration will tighten credit standards and implement new rules for appraisals on Jan. 1, saying a study to be published in November is expected to show FHA's capital reserve ratio slipping below mandated minimums.

FHA's insurance fund is sufficient to cover future losses, Federal Housing Commissioner David H. Stevens said, but the tighter policies will ensure that the loan guarantees remain self-sustaining and continue to be funded by premiums paid by borrowers, not taxpayers. The new policies also include guidelines for ordering appraisals that are intended to protect appraisers from pressure by lenders.

FHA is also placing new requirements on streamlined refinancing, payment history, income verification, and demonstration of net tangible benefit to the borrower. Borrowers must have made at least six months of payments in order to qualify under the new requirements, for example.

All in all, the tighter credit policies, along with an increase in average FHA credit scores over the last year from 633 to 693, will help reduce losses, ensuring that claims on FHA loans don't exceed premiums paid by borrowers, HUD said.

The U.S. House of Representatives this week passed legislation intended to help FHA combat fraud and lax underwriting by hiring additional staff and upgrading its technology. The bill was a response to fears that increased demand for FHA-backed loans is taxing the FHA's capabilities to oversee lenders, making the program more vulnerable to losses.

What does this mean for potential borrowers? It means that there is no better time than the present to buy a home. This particularly applies to 3.5% down borrowers. Historically low rates, low prices and lots on inventory. It's a no brain-er !!