Right now, the minimum down payment requirement for FHA is 3.5% to purchase a home, but some experts feel that that's not enough ‘skin in the game' for buyers. Many believe that FHA will raise the requirement to at least 5% and maybe 10%. What do you think?



Are Bigger FHA Downpayments Coming?
by Peter G. Miller

Rep. Scott Garrett (R-NJ) has a new bill that would cut off FHA mortgages from large numbers of borrowers.

Under the grossly mis-named FHA Taxpayer Protection Act of 2009 (HR. 3706), Garrett would increase the minimum FHA mortgage downpayment from 3.5 percent to 5 percent AND prohibit the financing of closing costs under such mortgages.

In essence, what Garrett is proposing is a back-door way to close down the FHA program at a time when we need more home sales to bring back real estate values.

"Homeownership is a noble goal," Garrett says. "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%."

Here's the reality:

FHA mortgages have LOWER foreclosure levels than prime loans. Who says so? The Mortgage Bankers of America. As the Association reported in August, 3.00 of all prime loans were in the process of foreclosure versus 15.05 percent for subprime loans and 2.98 percent for FHA mortgages.

The effort to increase the FHA down payment would reduce the number of FHA mortgages issued each quarter. With fewer mortgages there would be fewer home sales and less refinancing. The result of fewer home sales would be larger numbers of unsold homes and bigger inventories of unsold homes would push down home values.

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Source: FHALoanPros