According to a recent Bloomberg article~Home ownership may be falling out of reach for more Americans as lenders toughen their standards for FHA-insured loans.
Mortgage lenders including Wells Fargo & Co. and Bank of America Corp., the two largest, have raised the minimum credit score on FHA-insured loans that they will buy to 640 from 620. About 6.3 million people fall within that range, according to FICO, which created the formula for the ratings.
The higher hurdles for FHA loans, used in about a fifth of U.S. home purchases, add to challenges for a housing market already struggling with record-low sales and surging foreclosures. While lax lending fueled the bust that led the U.S. into recession, the new requirements will stifle the real estate recovery needed to revive the economy, said Ron Phipps, president of the National Association of Realtors.
FHA, which previously didn’t have minimums for FICO scores, began in October to require grades of at least 500, and more than 580 for loans with down payments of as little as 3.5 percent. Borrowers with scores between those levels must put 10 percent down. Several lenders moved minimums to about 620 at the start of 2009.
FICO scores range from 300 to 850. The grades are based on data such as whether borrowers have missed debt payments, balances on their credit cards relative to borrowing limits, and the length of their credit history. This time of year I always suggest checking your credit report to make sure everything is correct and to be sure you know your score. Find out where you fall!