Function

• FHA home loan programs offer home buyers low down payments and less stringent qualifying guidelines than most banks. People seeking FHA mortgages need to have minimum credit scores of 580 to qualify for the 3.5 percent down payment that's allowed through the FHA's 203(b) loan program. Borrowers whose credit scores fall below 580 will need to put down at least 10 percent of a home's purchase price. Nonetheless, banks can require scores of at least 660 to accept down payments of only 10 percent.
  
  

Effects

• A Marketwatch article titled "Home Buyers Beware: Tougher Rules for FHA Loans" notes the FHA asserts that borrowers whose credit scores fall below 580 are more likely to have delinquent mortgage accounts than people who have higher scores. According to the FHA, the number of mortgages that are 90 days in arrears is about three times higher among home buyers whose credit scores fall below 580.
  
  

Significance

• Any changes the FHA makes to its credit limits and other home-loan guidelines can have a significant impact on the housing market. A Boston Globe article titled "Sizing Up New FHA Requirements" notes mortgage brokers, real estate agents and others gauge the effects of FHA rule changes. The agency backs about 30 percent of the home loans in the United States, so tougher FHA credit requirements could significantly reduce the number of home buyers.
  
  

Potential

• The FHA website offers tips to consumers on how to improve their credit ratings to qualify for a home loan. It recommends that people who have poor credit histories make payments to all creditors on time for at least a year before applying for an FHA mortgage. Paying off debts or at least reducing the amount owed to creditors also will bolster credit scores.
  
  

Considerations

• Consider participating in a local Consumer Credit Counseling Service (CCCS) program to get help meeting FHA credit limits and avoid being denied a mortgage. According to the FHA, a credit counselor can help potential home buyers create debt-reduction and budget plans. Credit counseling is usually a free or low-cost service, unlike credit-repair services that often charge high fees.