FHA raising FICO floor, Reducing Seller Concessions

FHA borrowers will soon need a 580 FICO score in order purchase a home with the minimum 3.5 percent downpayment, and won't qualify for the program at all if they have a score below 500.

Federal housing officials are moving closer to implementing several policy changes announced in January that will also reduce the maximum allowable seller concession on FHA-backed loans from 6 percent to 3 percent and tighten underwriting standards for manually underwritten loans.

FHA will soon require 10 percent downpayments for borrowers with FICO scores between 500-579, instead of the 3.5 percent minimum. Borrowers with credit scores under 500 would be excluded from the program altogether.

HUD is currently reviewing public comments on this issue. These changes are aimed at curbing losses to FHA's capital ratio that fell below the Congressionally mandated minimum levels and to maintain FHA lending as a viable resource for existing and future homeowners.