Recent news from the Federal Housing Administration (FHA) indicates some changes are just around the corner.

Tighter lending requirements, reduced seller contribution allowances and higher fees for borrowers that opt for an FHA mortgage or federally-insured loan are coming this Spring.

The reason for the change is due to mortgage insurance claims on FHA borrower defaults. Mortgage insurance is required on most home loans with less than 20 percent down payment. An FHA home loan now only requires 3.5% down payment to be made by the borrower.

FHA mortgages now account for about 50% of all new home loans today.


• The upfront mortgage premium will now cost borrowers 2.25% of the loan amount, up from 1.75% and the second increase in the past two years. The upfront premium can still be rolled into the loan.

• New borrowers must have a minimum FICO credit score of 580 to qualify for FHA's 3.5% down payment loan, otherwise the borrower must put 10% down. Most lenders still require a minimum credit score of 620 to qualifiy for a mortgage. A FICO credit score is a numerical representation of a borrowers credit, the higher the score, the easier and less expensive it is to qualify for a loan.

• Seller contributions have been very popular in today's real estate market. Currently sellers are allowed to contribute up to 6% of the sales price towards buyers closing costs and pre-paid items on their home loan. The new limit will be cut in half to 3% of the sale price.

FHA has also proposed tighter rules for lenders to reduce its risk in the market. Lenders will be required to have a new worth of at least $1 million in year one and $2.5 million within three years. The Federal Housing Administration also wants to impose tighter loan underwriting guidelines and increase liability for those that choose to originate, underwrite and service FHA loans.