The Federal Housing Administration, which insured one-third of 2009 mortgages, is getting ready to announce the stricter guidelines for securing an FHA-backed mortgage loan. Since the mortgage crisis, the popularity of FHA loans rose dramatically. The loans back lenders if a borrower failed to pay. Because of the mortgage crisis, the agency is having difficulties managing the amount of defaults that have been occuring.

Some of the changes will include:

Increase in Premiums

The up-front mortgage premium will be increased from 1.75% to 2.25%.  There will also be a inquiry to Congress to continue with rate hikes moving forward, which is currently averaging at .5% monthly.

Better Credit Scores

The changes will require that borrowers have credit scores of at least 580 in order to qualify for the down payment program of 3.5%. Lower credit scores will warrant a down payment amount of at least 10%.

Closing Cost Assistance

New policies will limit the amount of closing costs sellers can give to buyers. It used to be up to 6% of the price of the home but new policies will drop it down to 3%.

Limiting FHA Mortgages

The agency also plans to monitor the performance and compliance of lenders offering FHA mortgages. They require mortgage companies who issue FHA loans to assume liability for loans they underwrite and originate.

Since FHA mortgages are one of the few options for many consumers to buy a home, their popularity is not expected to decrease so the agency feels that these measure will offer some protection against another outbreak of defaults. It is estimated that upwards of 50% of all first-time homebuyers use the FHA loans to buy their home in 2009 with  total of more than $360 billion in single-family mortgages, which is four times the amount the FHA backed just two years prior.

The FHA hopes the new policies will help balance out the situation and allow them to still serve communities and the nation’s economic recovery process. The FHA will still be one of the largest ressources for home-financing for many communities even after the belt-tightening measures.

If Your Looking To Buy

Since many consumers are looking to take advantage of the homebuyer tax credit, experts recommend shoring up a low credit score and working to pay off debts before applying for a home loan. A better credit score affords more options for interest rates and loan terms. Saving for a down payment should also be a priority before shopping for a home. Most all lenders now demand high credit scores and more downpayment money than ever before to ensure the best rates and prevent the risk of defaults that have been so prevelant in the last year.