The Federal Housing Administration has been insuring U.S. mortgage loans since 1934. The insurance helps protect lenders against loss by providing claims to lenders in the event an FHA-insured homeowner defaults on a loan. Though it makes the payments to lenders, the program is really provided for the benefit of American homebuyers.

The FHA program helps extend the American dream of owning a house to lower income Americans and people who could not otherwise meet traditional lending requirements. Instead of requiring 20% down, FHA qualified buyers can purchase a new home with 3.5% down. Homebuyers must qualify for the program, however, and they – not the lenders – pay for the insurance as part of their monthly mortgage payments.

The program worked well throughout history and made it possible for millions of Americans to purchase their own homes. The premiums paid by FHA borrowers were added to the program’s reserves, and those reserves were then used to pay lenders in the event a borrower defaulted on a loan. Unfortunately, the unprecedented number of defaults that occurred from 2000 to 2009 greatly reduced the FHA’s reserves and led to a number of significant changes that went into effect on April 1, 2013. Specifically, the program’s down payment requirements, annual insurance premiums, and eligibility requirements changed.

Beginning in April 2013, buyers who obtain loans above $625,500 will be required to put 5% down, instead of 3.5%. Annual mortgage insurance premiums will go up by 0.10% for loans under $625,500 and by 0.05% for loans above $625,500. Borrowers with credit scores below 620 will also be required to have a debt-to-income ratio of at least 43%. Additionally, fixed-rate “Standard” reverse mortgages will no longer qualify for FHA insurance.

Additional changes are scheduled to take effect in June. Beginning on June 3, 2013, payment of the required mortgage insurance will extend from a period of five years to the life of the loan in most cases. This change, while small, means buyers will end up paying significantly more to take out an FHA-insured loan in June 2013 and beyond than they paid in the past. Thankfully, there’s still time to obtain an FHA loan before the final change takes effect.