FHA Down Payment Requirements Increasing to 5% - Fact or Fiction?
Since December, I have heard rumors about the FHA Down Payment Requirements increasing to 5%.
Now that we have gotten into 2010, the rumors have intensified. The word on the street is that FHA Down Payment Requirements are increasing in March, but I have yet to uncover a shred of reliable documentation, much less a mortgagee letter that details this change.
If you have a link to a credible source on this change, please post a comment!
The effect of an increase in FHA Down Payment Requirements will be big. Traditionally FHA has been a first time home buyer program, part of the reason is a smaller down payment than a conventional mortgage. An increase in FHA Down Payment Requirements will not help first time home buyers.
Additionally, in the past, 6% seller concessions were allowed which enable the buyer to utilize that money, if needed, for many different purposes, whether it was closing costs or rate buydown. With new changes in effect to lower the maximum to 3%, this will cinch in the belt even further for first timers who are struggling to sock away enough money to buy a home, especially in markets where home prices are lower than Colorado, and 3% may not even cover closing costs.
Increases in up-front mortgage insurance premiums will also increase borrowing costs, and if rates rise in 2010, the effect of tightening underwriting standards, FHA Down Payment Requirements increasing, and higher mortgage rates could be devastating on an tentatively-improving housing industry.
It's not difficult to see why FHA is cracking down. FHA's market share increased to 21% in 2009, up nearly 50% from 2008. This has put a serious strain on FHA's reserve funds which must be maintained at a certain level. Therefore, by tightening standards and increasing fees, they will not only theoretically increase the reserve fund, but will cut back on defaults because they will be creating a stronger pool of loans.
I would like to put the rumors in my office to rest. If you have something official announcing FHA Down Payment Requirement increases in March or any other news on this rumor, please post a comment.
What's your opinion?
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