FHA loan requirements have been relaxed as part of the Federal government's Housing and Economic Recovery Act, 2008. The purpose of the act is to provide some relief for home owners affected by the housing finance crisis, and to help stabilise the property market overall.

FHA Loan Requirements Summary

1. Age - you must be above the minimum age required to sign a mortgage in your state. There is no maximum age limit.

2. Citizenship - you are not required to be a US citizen, but you must be a permanent resident of the USA who is permitted to work in the US.

3. Social Security Number - you will require a valid Social Security Number; a Tax ID number is not sufficient.

4. You must have a 3% down payment (this will go up to 3.5% as of September 1, when the new legislation comes into effect), and you must be able to finance the closing costs of the loan.

5. The property in question must be a residential dwelling suitable to house 1-4 families.

6. The value of the property cannot exceed the allowable maximum for your area and the type of dwelling.

Relaxing the FHA loan requirements will allow more FHA insured loans to be issued, and in some parts of the country, will allow FHA loans to be issued for higher value properties than was previously premitted.

The Housing and Economic Recovery Act of 2008

This legislation strengthens and modernizes the regulation of the housing government-sponsored enterprises involved with FHA loans – Fannie Mae and Freddie Mac (the enterprises) and the Federal Home Loan Banks (FHLBs or Banks). In addition, it creates a new program at FHA (Hope For home Owners) that will help at least 400,000 families save their homes from foreclosure by providing for new FHA loans after lenders take deep discounts.

Features

Voluntary participation. Because of the massive losses these refinancing deals will cause for mortgage holders, this can only be be a voluntary program. No lenders, servicers, or investors will be compelled to participate. Otherwise, there would be rioting on Wall Street!

Restore confidence, liquidity, and transparency. Credit markets are fearful and frozen at least in part because the free-fall in property prices means that banks and other financial institutions do not know what their subprime mortgages and related securities are worth. The uncertainty is forcing lenders to hoard capital and stop the lending necessary for economic growth. The government hopes this program will help restore confidence and get markets flowing again.

New Reduced Loan Amount. The size of the new FHA-insured loan will be lesser of the amount the borrower can afford to repay, as determined by the current affordability requirements of FHA; or, 90% of the current value of the home. As you can imagine, in some cases this is a deep discount on the previously appraised value of the home.

Loans must be 30-year, fixed rate loans.

If you are suffering from mortgage stress, you should see whether the new FHA lender requirements will allow you to qualify for an FHA insured mortgage.