DOES 1 % DOWN MAKE SENSE?

In an attempt to bring back something That looks like a no money down home purchase that dissappeared on Oct. 1st there is a new FHA loan that requires only a 1% down payment. As I understand at this early stage there is an income qualifier (household earnings of less than $73,000) and it carries a significantly higher interest rate of at least a half percent. There is actually a second mortgage involved as the first is for 95% and the second picks up the remaining 5 %. The good news is that the second mortgage is at a slightly lower interest rate than the first because it is a 20 year fixed loan as opposed to the 30 year fixed on the first. Closing costs are going to be higher so you are going to need to ask the seller for about 4% to cover costs. With the higher interest rate the monthly payment for the buyer will be approximately $120 per month higher on a $200,000 purchase. The buyer could ask the seller to contribute 6% towards closing costs and use the additional 2 % to buy down the interest rate to bring the monthly payment closer to what it would be at the normal rate of a 3% down loan. All this said it woul probably be best to go with the standard 3% down FHA loan but the 1% down plan surely adds a nice alternative for the buyer with a cash reserve problem. On the bigger picture this could be the stimulus our market needs. For more questions about this or any other Real Estate matter please contact me or visit me at www.relocateaz.com .