FHA Home Loans Require Higher Credit Score For Homebuyers–Will Higher Scores Cause Troubles?

Many homeowners who had a low credit score were able to obtain a home loan from the Federal Housing Administration, but reports indicate that over the past months the FHA has not insured borrowers with a sub 500 credit score. In fact, this has been a practice for quite some time as many loans are being reported to go to borrowers who have scores above 620, with a minimum being around 580.

The Federal Housing Administration has been able to offer home loan opportunities for many home buyers who may have a low credit score as a result of various circumstances. There are homeowners who are able to meet the obligations that come with owning a home but might be disqualified from a mortgage by a traditional lender due to their poor credit history.

However, the rate of delinquency and default is often high on FHA home loans and by setting limits on credit scores that homeowners must meet to obtain this type of home loan is hoped to reduce the risk that the FHA must bear. It was reported that in May almost 9% of all FHA home loans were delinquent, which was an increase from the previous year.

With economic recovery slow and the job market preventing many unemployed men and women from obtaining an occupation they need to help meet the costs of their financial obligations, it is becoming more difficult for those who are in a poor financial position to obtain a home loan. After the recession, many traditional lenders were heavily scrutinized when it came to lending to subprime borrowers and, since FHA home loans are tailored for homeowners who have less-than-perfect credit, more constricted qualifications would be necessary.

While the FHA does continue to help homeowners who have a low credit score obtaine the funding they need to purchase a home, homeowners who are in a severely poor position with their credit score may have to work to rebuild their credit history and raise their score before they can receive funding to obtain a home loan. Obviously, there are those who feel that tightening the qualifications and levying heavier restrictions for homeowners who are seeking a home loan can be beneficial, but there is hope that more lending institutions will begin to make smarter home loans so as to avoid difficulties in the future similar to those that have recently been experienced in the housing market.