FHA going broke? How to qualify for a home loan anyway

As the economy is supposed to be emerging from the dark cave of deep recession, you might expect it would become easier for you to secure a mortgage in the months ahead. The truth is, however, that unless you start taking some key steps right now, you may find yourself still in that recessionary cave instead of a new home, because the Federal Housing Administration is running out of money. For many potential home buyers, that's a bit like your rich uncle Sam, who was always a soft touch for a few extra bucks, filing for bankruptcy and leaving you in the lurch.

In remarks that sound faintly like what the first mate might have told the shocked captain of the Titanic, the secretary of housing and urban development, Shaun Donovan,tells the New York Times, " We recognize there is a possibility that the reserves go below zero and stay there."

Not surprisingly, the ever-increasing number of homeowners going into foreclosure is what is robbing the housing agency of the cash it would otherwise have to hand out to others seeking shelter from this still raging (despite what some in D.C. might claim) fiscal storm.

But let's say you happen to be one of those oddly optimistic types who are determined without either cash or impressive credit score to purchase a home in the not-too-distant future. There are some steps you can take....make that, better take!!...in order to get a mortgage made possible by the insurance of the FHA.

First, try to save some money. While an FHA-backed loan won't require the 20% down demanded by most banks, it will ask you to come up with a 3.5% down payment. That is more than the sub-prime days--in some cases, 3.5% more--so if you don't have the cash in hand, don't count on FHA backing.

And, now would be a great time to pay down some of that credit card debt to increase your credit score: The FHA has reportedly hiked the average credit score it deems desirable from 633 to 693.