Is FHA going to raise the down payment to 5%?

Mortgage and Lending with Willow Bend Mortgage NMLS# 181033

Down Payment...that's a great question!  I wish I knew the final answer.

On May 25, 2011, the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity met with one goal: 

"Determine the role of FHA, RHS, and GNMA in the Single- and Multi-Family Mortgage Markets"

Several industry leaders were brought in to testify at the hearing, including NAR's own president, Ron Phipps as well as chairman of Mortgage Banker's Association, Michael Berman.

A draft of the FHA-Rural Regulatory Improvement Act of 2011 was the focus of the hearing.  The headline from this act will obviously be the change of FHA's minimum down payment from 3.5% to 5.0%.  

I tend to agree with Phipps when he testified, "Proposals to further increase FHA down payment requirements are unwarranted.  The current 3.5% down payment and closing costs represent a significat financial commitment. Requiring a larger down payment does little to reduce risk of default compared to strong underwriting requirments, and only puts home ownership out of reach for many families who have the income necessary to carry the cost of the home purchase."

I couldn't have said it better myself.  I'm sure most everyone would agree that underwriting standards have only gotten tougher over the past two years.



FHA logoThis new Act had many components and here is a quick summary of the Top 10 issues it addresses:

1) Sets a minimun guidelines for the Special Risk Insurance Fund and the General Insurance Fund, as well as time frames for doing so.

2) Increasing the minimum down payment for FHA loans from 3.5% to 5.0%

3) Sets new FHA loan limits based on 125% of the median single-family house price for each county

4) Sets FHA's Annual Mortgage Insurance premiums to be no less than 0.55% annually but not more than 1.5% annually

5) Any FHA Mortgagee (a direct endorsement Lender) that approves a mortgage that is later found to have not been underwritten correctly, and HUD has to pay a claim in a certain amount of time, HUD may require the lender to indemnify HUD against the loss.  If fraud or misrepresentation is found, through out the time periods!

6) Gives HUD the ability to terminate a lender's ability to originate or underwrite FHA loans

7) Establishes a CFO for GNMA

8) Establishes a new Deputy Assistant Secretary for Risk at FHA

9) Would move the management of Rural Housing programs under the HUD umbrella

10) Would potentially change RHS loans' guarantee fee to 1% with an annual premium of 0.5% (payable monthly, much like FHA Loans already work)


Again, none of these are specifically implemented just yet and none of these provisions have been officially approved. But in my experience, if HUD wants to do something, it's pretty much a done deal, it's just a matter of when.


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Aida Pinto
United Associated Brokers - Downey, CA
Real Estate Broker (562) 916-3237

Would it be a good idea to increase the down payment and get rid of pmi?

May 25, 2011 07:09 PM #1
Brandon Snider
Willow Bend Mortgage - Cullman, AL
Your Lender for Life

Great question Aida.  My opinion is that most of the time, the biggest obstacle for people wanting to purchase a home is the down payment.  Saving up 5, 10, or even 20% takes years sometimes for the average household.  However, being able to pay a monthly payment is always easier, you can just adjust how much you can afford to pay.  Anyone else got some opinions on this?

May 25, 2011 07:21 PM #2
Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

Good Morning Brandon, you have a witness!  It is not the time to increase downpayment requirements.

May 25, 2011 08:09 PM #3
Ronald DiLalla
Century 21 Discovery DRE 01813824 - Anaheim, CA
No. Orange Cty Real Estate

Hi Brandon, thanks for sharing, appears that we are in for many more changes in the near future.

May 25, 2011 08:10 PM #4
Doug Bullwinkel
Envoy Mortgage - Roseville, CA
NMLS #281609

Leave it to Congress to destroy any chance of a recovery to the housing market anytime soon.  They are indeed, the gift that keeps on giving. 

May 25, 2011 09:05 PM #5
Brandon Snider
Willow Bend Mortgage - Cullman, AL
Your Lender for Life

@Dan: I agree, and the biggest reason is I believe the extra 1.5% would do very little to reduce the risk, but it will dramatically reduce the buyer pool.

@Ronald: Yes, I'm sure the changes will keep on coming!

@Doug: That's too funny, but true.  It's almost like they don't want it to recover.

May 26, 2011 04:03 AM #6
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