Borrowers like loans insured by the U.S. Department of Housing and Urban Development (HUD)'s Fair Housing Administration largely because they require smaller down payments -- as little as 3.5 percent of a home's purchase price, depending on borrowers' credit scores. But the FHA only insures loans; it doesn't originate them. This means it works with private lenders to create FHA loans, lenders that consumers have to find. The good news? Most lenders can originate FHA loans. But lenders do have to meet certain net worth requirements.
As of May 2013, any single-family lender that wants to originate FHA loans must boast a minimum net worth of at least $1 million. Such lenders can originate up to $25 million worth of FHA-insured single-family mortgages during a fiscal year. However, those lenders who originate more than that must not only have a net worth of $1 million, they must also boast an additional net worth of 1 percent of the total loan volume they originate more than $25 million in a year. So if a lender originates $35 million in FHA-insured single-family mortgage loans, it must have a total net worth of $1.1 million -- $1 million plus 1 percent of $10 million, which is $100,000.
The 2013 rule is a change from previous FHA policy. Since 1993, FHA had required its approved lenders to have a net worth of just $250,000. HUD said it made the change as a way to reduce its risk.
Finding FHA Lenders
The rules change shouldn't make it more difficult for borrowers to find lenders that originate FHA loans. Borrowers can find such lenders by contacting mortgage companies licensed to do business in their state. The vast majority of the lenders whom consumers call will be approved for FHA loans. Borrowers can also obtain a list of FHA-approved lenders at the HUD website. The department's Lender List page allows borrowers to search for lenders by state, county or ZIP code.
The lender net worth requirement isn't the only recent change that has hit the FHA. The agency also in 2010 changed the credit-score rules for borrowers. Borrowers who want an FHA-insured loan with a down payment requirement of 3.5 percent of a home's purchase price now must have a FICO credit score of at least 580. Borrowers must have a FICO score of at least 500 to qualify for a down payment of 10 percent of a home's purchase price. Those borrowers with credit scores below 500 will not qualify for any kind of FHA loan.
- U.S. Department of Housing and Urban Development: FHA Announces Policy Changes to Address Risk and Strengthen Finances
- U.S. Department of Housing and Urban Development: New FHA Rules Strengthen Risk Management
- National Council of State Housing Agencies: HUD Increases FHA Lender Net Worth Requirements
- U.S. Department of Housing and Urban Development: HUD FHA Lender List
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.