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Gerrie Sobities' Blog

By Gerrie Sobities-Associate Broker | Agent in Collegeville, PA

FHA down payment hikes

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    FHA Commissioner Opposes Down Payment Hikes

    March 11, 2010

    By Alan Zibel

    WASHINGTON—The head of the Federal Housing Administration is warning that boosting the minimum down payment borrowers must provide to qualify for home loans backed by the agency could threaten the housing market.

    FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the mandatory down payment were hiked from the current level of 3.5 percent to 5 percent. That’s a 40 percent drop.

    The result would a potential “double-dip in housing prices,” because fewer people would qualify for loans, Stevens told lawmakers.

    The FHA does not make loans, but offers insurance against their default. It has been insuring roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.

    The agency said in January it would raise fees and tighten lending standards to shore up its strapped finances in hopes of avoiding a taxpayer bailout. The government agency, which has faced rising losses from foreclosed homes, has seen its reserves sink below the minimum level required by Congress.

    The agency, however, is facing pressure on both sides. Democrats fear that hiking standards too much will cut off many borrowers—particularly minorities—from being able to buy homes. Republicans, however, are pushing for even tighter standards than the agency has proposed—such as the 5 percent down payment requirement.

    “The question now is: Have we gone far enough?” said Rep Scott Garrett, R-N.J.

    Under the proposed changes, many of which need to be approved by Congress, homebuyers would pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount. That’s an increase from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500.

    Credit score requirements also will be hiked. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 now would need a down payment of at least 10 percent.

    A service of YellowBrix, Inc.

    Comments

    By Chad Bahnsen , Loan Officer,  Tue Mar 16 2010, 14:21
    Good blog....the only thing we know for sure is the 2.25% up front funding fee but I think it's likely that the other items you mentioned will follow. Clients really need to focus on their credit improvement and saving a little more money too.
    By Dan Chase,  Tue Mar 16 2010, 17:42
    I would prefer to see a higher down payment. Anyone who can save up 3.5% can save up 5%. It simply takes dedication and desire to do it. It would help FHA's bottom line.

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