New FHA Credit Requirements Turn the Heat Up on Borrowers -- SPONSORSHIP

Ever since the housing crisis hit, homeowners unable to secure loans from private lenders -- which have gone back to requiring the traditional 20 percent down payment -- have relied on government-insured loans offered for as little as 3.5 percent down. Now the Federal Housing Administration (FHA) is tightening its belt by making the credit requirements for such loans more stringent.

In 2009, defaults on FHA loans surpassed 9 percent, up from 6.8 percent the year before. As delinquencies on loans rise, the FHA's largess is contracting. According to the Department of Housing and Development's latest quarterly report to Congress, the FHA's reserve funds --used to make up the difference when borrowers default on their loans -- has slumped to $3.5 billion, from $19.3 billion in 2008.

To account for a potential shortfall, the government agency announced some critical changes in January that will impact homeowners with FHA mortgages and for those hoping to qualify.

Some of the most significant changes relate to borrowers' credit profiles. Here's what to expect: