Yesterday, FHA announced that they were going to raise the minimum down payment requirements for FHA borrowers who have low credit scores.

According to the announcement, this change will take effect sometime in the summer after a comment period and is expected to impact FHA borrowers who have credit scores that are lower than 580.  Currently, many FHA lenders require a credit score of at least 620, so I think that it is safe to say that the limited lenders who currently allow lending to borrowers with a 580 credit score or lower are going to become nearly-extinct.

According to the FHA press release:

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

I expect that by putting this in place, it will not be very long before a minimum of a 620 credit score (and possibly higher) will be required to get an FHA loan. This change was made in conjunction with raising the mortgage insurance requirements to get an FHA loan as well as reducing seller concessions from 6% to 3% – which are all moves designed to make it tougher to get an FHA loan.

And more expensive.