FHA is raising fees and tightening lending standards

The Federal Housing Administration is raising fees and tightening lending standards.

The FHA insures approximately 30% of new loans and 50% of first-time buyers. They are so popular because the buyer only has to put 3.5% down and there are usually other programs to help with this amount. They do not make loans, but rather offers insurance against default.

The changes, which will go into effect in the first half of the year.

The new policies, to be announced today, the home buyers will:

■Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount (now it is 1.75) Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.

■Need a credit score of at least 580 to qualify. (now it is 500)

FHA also said that sellers would be able to pay closing costs of up to only 3 percent of a home's sales price, rather than the current 6 percent.

The increased upfront mortgage-insurance requirement will probably take effect in the spring. The new FICO score requirement and the change in seller-contributed closing costs will most likely take effect in early summer.