The FHA provides mortgage insurance on loans made by FHA-approved lenders. Borrowers must meet certain requirements established by the FHA to qualify for the insurance, but lenders bear less risk because the FHA will pay the lender if a homeowner defaults on his or her loan.

Loans insured by the FHA generally are less expensive to borrowers because of the lower down payment requirements. However these loans also have fees, such as up-front mortgage insurance.FHA is increasing th up-front mortgage insurance premium from its current 1.75% to 2.25% effective in the spring.

The agency also is raising the minimum credit score requirements. Currently, borrowers with FICO scores as low as 500 have been approved for FHA-insured loans. Under the policy changes, new borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA's 3.5% down payment program. If you have less than a 580 FICO score will be required to put down at least 10%. FHA expects this to take effect in early summer once it passes the normal regulatory process.

The new policy also will reduce the amount of money sellers can provide to home buyers at the closing to 3% down from 6% of the home's price.