Will Congress mandate an increased down-payment requirement for FHA home loans in 2012? FHA rates remain at record lows, but default rates are high and the mortgage insurance premium has been raised so many times that it really brings into question the future of FHA mortgages especially for new home buyers. The U.S. House Financial Services Committee has drafted legislation that would, among other things, increase the FHA down-payment requirement to 5% and prohibit borrowers from financing their closing costs. The 2012 FHA requirements for home financing continued the tradition of a 3.5% down-payment. FHA guidelines were tightened dramatically over the last few years and for the first time the government finance program implemented a minimum credit score.
Berman went on to share the MBA’s opinion on the matter, saying, “The current minimum down-payment of 3.5% for borrowers with fico scores of 580 or above and 10% for borrowers with credit scores of 579 and below permits borrowers to have appropriate “skin in the game” while providing credit-worthy homebuyers with an option for entering the home buying market. Maintaining the existing minimum down-payment requirements, while requiring strong underwriting standards, such as full documentation and income verification, allows borrowers to responsibly become, and stay, homeowners.”
What Impact Will Higher FHA Down-Payment Requirements Have on the Sluggish Housing Industry?
The Mortgage Bankers Association is not the only industry group to oppose the down-payment hike. Ron Phillips, President of the National Association of Realtors, shared similar sentiments in his prepared remarks. “NAR strongly opposes raising down-payment requirements for FHA loans.” The correlation between down-payment and loan performance is significantly less important than the linkage to strong underwriting, which FHA continues to have. FHA’s foreclosure rate remains less than conventional mortgages, so we don’t believe changes to the down-payment would do anything but disenfranchise many creditworthy homebuyers”.
With home prices falling to year lows and interest rates lower than they have ever been, buying a home is very appealing with 3.5% FHA down-payment requirements.