So far this year, nearly half of all first-time home buyers in the United States used Federal Housing Administration-insured financing to make a new home purchase or to refinance. But standards to qualify for FHA financing are on the verge of becoming more stringent.
In a recent Big Builder Online survey, more than half of the respondents?54.1%?said more than 75% of their home buyers are using FHA financing, while 21.5% said the number of their buyers using FHA is in the 51% to 75% range. However, the remainder of the respondents weren't seeing as many FHA-financed buyers: 18.9% said they were seeing 25% to 50% of their buyers using FHA, and 5.4% said the number was less than 25%.
An overwhelming majority of respondents?83.8%?said they are expecting to see credit score requirements on FHA loans to increase in the next six to 12 months. The remaining respondents said they didn't expect a credit score increase or were unsure.
But respondents were mixed on how many points they think the minimum credit score requirement would increase, with 37.8% predicting 15 to 20 points and 32.4% predicting more than 25 points. However, 8.1% of respondents said they don't expect to see a boost in minimum credit score requirements. The remaining respondents predicted credit score increases of 0 to 5 points, 2.7%; 6 to 10 points, 10.8%; 11 to 15 points, 2.7%; and 21 to 25 points, 5.4%.
If credit score requirements are boosted, the top concern for most respondents?89.2%?is that it will mean fewer potential buyers. More than half?54.1%?also feared more cancellations, and 24.3% were concerned about an increased number of finished specs. "[It will] continue to stifle or kill housing," said one respondent.
But what percentage of home buyers would no longer qualify for an FHA mortgage if there is a 10-point increase in the minimum credit score?
Approximately one-third of respondents?32.4%?said 25% to 49% of their home buyers would not be able to qualify for an FHA mortgage with a 10-point hike. Some respondents were less optimistic: 24.3% said between 75% and 89% of their buyers wouldn't be able to qualify, and 10.8% said between 50% and 74% wouldn't qualify. "First-time buyers already are barely able to qualify," noted one respondent. However, nearly a quarter of respondents?24.3%?said they did expect the number of buyers to not qualify to be less than 25%.