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For much of this year, there has been talk of financial reform. When these changes affect consumers, I think it is important that everyone has a clear picture of what’s going on. In the past week, the FHA (Federal Housing Administration) implemented some changes to the way their loans work. Since so many Americans use these loan products (about 1 in 4), let’s take a minute to look at what has changed:

1. Minimum Credit Score: The FHA now requires those who apply for their loans to have a minimum FICO score of 500 or more. In the past no such minimum score was needed to apply for FHA loans.
2. Up Front Insurance Premium Drops: Down from 2.25% to just 1%, this change will help save consumers thousands at the time of their closing. 
3. Monthly Insurance Premiums Increase: On a monthly basis however, you will pay more. Up from 0.55% to 0.9%, these monthly premiums will have you paying more over the long run.
4. More Underwater Aid: In the past, very few FHA programs were available to those who were underwater on their mortgage. With new incentives for lenders who take on these products as well as solidified underwriting standards, more consumers than ever before will qualify for FHA loans.

These changes, which affect all loans applied for today, are not the end of reform for the FHA. A decrease in seller concessions allowed and more underwriting standards are both likely candidates for future changes.

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