Beginning July 14, 2008 the Federal Housing Administration (FHA) will begin to use risked-based pricing on all new originations of one- to four-unit single family mortgages with regards to the mortgage insurance premiums (MIPs). They also now have a minimum credit score requirement. Previously, they didn’t. FHA now has a requirement of a minimum 500 FICO for loan to values greater than 90%. Borrowers with less than 500 FICO credit scores have a maximum LTV at 90%.

New FHA Credit Score Requirements

Unlike conventional mortgage loans, FHA insured mortgages require an upfront mortgage insurance premium regardless of the loan to value (LTV). The mortgage insurance, referred to as mutual mortgage insurance (MMI), charges either 00%/.50%/.55% per year of the loan amount. In addition to the mutual mortgage insurance that is charged to the home owner each month, FHA charges an upfront mortgage insurance premium (MIP). Upfront mortgage insurance premiums will range from 1.25% to 2.25% based on credit score--1.25% to 2.25% for 30 year fixed rate mortgages and 1.00% to 2.00% for 15 year mortgages.

Housing and Urban Development (HUD) recognizes that some borrowers may not have yet established a credit history. But, borrowers without credit scores require manual underwriting. This typically involves the lender developing a credit history from utility payment records, rental payments, automobile insurance payments, or other means. This is called non-traditional credit. Specific guidelines in dealing with this were released on April 29, 2008. Under these new guidelines, you may or may not be able to qualify, so it’s best to go ahead and establish a credit line, if possible.