Money in the Bank Meeting New FHA Reserve Requirements

Perhaps one of the most difficult aspects of the recent recession was the sudden evaporation of credit from major banks and lending institutions. The logic behind it was understandable: too much easy credit had led, in part, to the collapse that stunned the nation and then the world in 2008.

Although some housing markets were less affected than others (Florida and Nevada have been especially hard-hit) everyone still felt the shifts. Among the repercussions was a new set of regulations issued by the Federal Housing Administration (FHA) in February 2010 which created a number of requirements for any building that wished to accept FHA-backed mortgage loans.

“Associations that do not show at least 10 percent of their annual budget being allocated to reserves will be unable to qualify for FHA certification,” says Lauren Peddinghaus, CMCA of Haus Financial Services LLC in Chicago. “ FHA certification is required for the entire association if a buyer is looking to purchase a unit with an FHA-insured mortgage. Some associations, particularly the smaller ones, do not produce an annual budget, let alone allocate funds for reserves. These associations have to implement a budget that meets the requirements before they can become FHA certified.”

A Bit of Banking Background

The Federal Housing Administration was born during the Great Depression, created by Congress in 1934 and absorbed by the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965. The main purpose of the FHA is to provide mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. The FHA insures mortgages on single family and multifamily homes, including condominium communities. According to the FHA website, it is the largest insurer of mortgages in the world, insuring more than 34 million properties since its inception. That number currently includes 4.8 million insured single family mortgages and 13,000 insured multifamily projects.

As the FHA website explains, “FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.”


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  • I agree with Troz. An FHA insured mgrtoage is going to be your best bet. The FHA or Federal Housing Authority, is here to insure any higher risk loans like the credit you were speaking of. Most lenders require a 620 credit score or higher, however there are some out there that will go lower than 580. As far as your time line goes, FHA loans can take a bit of time with lower fico scores. One of the things they will take into consideration is what caused the lower scores. If you have any recent derogatory items, it may be harder to get. If in the past 2 years you have had quite a few missed payments you will need extenuating circumstances which basically means something happened at hat point in time that couldn't be helped such as hospitalization, ect. Good luck!