FHA Down Payment Requirement Could Increase to 5%

Posted by Steve Lines
October 16, 2009

If you are planning on buying a house and taking advantage of FHA’s low down payment requirement of 3.5%, you may want to do it now.

Last year, the minimum down payment requirement for FHA loans was increased from 3% to 3.5% as part of the Housing and Economic Recovery Act. It looks like lawmakers are trying to increase it even further.

On October 1st, Rep. Scott Garrett (R-NJ) introduced a bill, the ‘FHA Taxpayer Protection Act of 2009’, that if passed, would increase the minimum down payment requirement for FHA loans to 5%.

“Homeownership is a noble goal,” Garrett said. “However, the benefits of promoting homeownership using government subsidies must be balanced against the potential risk of insuring less creditworthy borrowers and exposing the American taxpayer to that risk. As we have learned repeatedly throughout the mortgage crisis, the amount of equity a homeowner has in their home directly correlates to the credit risk associated to their mortgage. In trying to find a reasonable balance between the current, extraordinarily low level and a level that would ensure a significant reduction of risk to the taxpayer, I am introducing legislation to increase the FHA down payment requirement to 5%.”

In response to this bill, David Steven, the FHA Commissioner, said the following in support of current FHA policies:

“If it weren’t for this program, assuming that risk is being protected, this would forestall recovery of key metropolitan markets across the nation… When I see members of Congress move a bill out that says raise it to 5%…I get very concerned… It isn’t the down payment on its own that causes a default.”

There have been recent concerns about the rising risk to tax payers resulting from the significant increase in FHA’s market share and the decrease in the agency’s capital reserves. As such, even if Representative Garrett’s bill does not pass, it is likely that there will be further attempts to tighten FHA’s qualification guidelines. Therefore, if you are planning on buying a house and taking advantage of FHA’s current 3.5% down payment requirement, you may want to do it now.

Feel free to contact me with questions.

Steve Lines
Authorized FHA Loan Consultant and Co-Branch Manager
Academy Mortgage
Serving Mesa, AZ and all of the Phoenix Metropolitan Area
480-344-3662 (direct)
480-329-3346 (mobile)
slines@bestfhalender.com (email)
www.bestFHAlender.com (my blog)
www.twitter.com/stevelines
www.linkedin.com/in/stevenlines

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