FHA is tightening up its standards for home buyers - but the changes are not as

tough as some analysts had feared - especially on downpayments.

FHA commissioner David Stevens outlined the agency's new underwriting policies

last week, including an increase in the "upfront" mortgage insurance premium

charged all borrowers, and a decrease in the amount of financial inducements

a home seller can provide a buyer.

The tightening of the rules come in the wake of findings by an independent

auditor last Fall that FHA's insurance fund capital reserves have fallen far below

the congressionally-required minimums.

HUD Secretary Shaun Donovan promised in response that FHA would take steps

early this year to begin building up its reserves with higher premium revenues

and ratchet up its credit standards for some borrowers.

Under the new plan, which will take effect shortly, FHA applicants will be

charged a higher entry fee on insurance: An upfront premium of two and a

quarter percent (2.25%) of the loan amount, instead of the current one and

three quarters (1.75%)percent premium.

On a $200,000 home purchase with a $193,000 loan amount, the new premium

will add about $965 to an FHA borrower's costs.

There will be no immediate increase to FHA's current annual insurance premiums

of zero point fifty five percent (0.55). But Stevens said the agency plans to

ask Congress for a higher limit on annual premiums, which get tacked onto borrowers'

monthly mortgage bills.

Once FHA gets Congress's okay, Stevens said he expects to boost the annual

premiums and reduce the upfront premiums. That, in turn, will lower the cash

borrowers need to bring to the table, and stretch out the higher premium

charges over multiple years.

Stevens also announced that applicants with FICO credit scores below 580 will

now have to make downpayments of at least 10 percent, up from three and a

half percent currently.

That change shouldn't have much of an impact, however, since most of the

largest lenders offering FHA mortgages already require a minimum credit score

of 620 for all applicants.

Now for the good news on downpayments: Though mortgage industry analysts

had expected FHA to raise its minimum cash down requirement to five percent,

Stevens said 3.5 percent will remain the standard.

On the other hand, Stevens also announced that the agency is lowering its

"seller concessions" ceiling from six percent to three percent, effective immediately.

Concessions include contributions at settlement from the seller to the

buyer to help cover loan fees and closing costs. Critics say the concessions often

get lumped onto the house price -- thereby raising FHA's loss exposure.