The Federal Housing Administration has long had the mission to help first time homebuyers and others who may not be able to qualify for a conventional mortgage.
Right now you would likely need to have a down payment of 10 to 20% in order to qualify for a typical conventional mortgage. Before the mortgage crisis, there was actually a time when it was possible to get a conventional loan for zero down payment and even for 125% of the value of the house. Those days are over for now and may not return in the foreseeable future. Lenders are now much more careful and their qualification standards have increased. Judging from the foreclosure crisis, the easy lending of the past was a mistake.
With an FHA loan, however, you can still qualify for a mortgage with just a 3.5% down payment. However, FHA has now also increased its standards and in order to qualify for the lowest down payment of only 3.5% you will need to have a minimum FICO score of 580, which is up from the previous 500. Any individual with a score below 580 would be required to have a 10% down payment.
FHA sets standards for what they will accept in order to back the loan but the fact of the matter is that most lenders have a minimum standard FICO score of at least 620.
Other recent changes from FHA are an increase in the upfront mortgage insurance premium to 2.25% from 1.75%. They have also asked Congress for permission to boost the maximum annual mortgage insurance premium, which if passed will shift a portion of the premium from the upfront premium to an annual premium.
FHA has also changed the amount that the sellers can contribute towards closing costs from 6% down to 3%.
The mortgage-insurance changes will take effect in spring 2010 with the new FICO requirement and the change is seller contributions to take effect in early summer.
