As traditional lenders have adopted more stringent credit requirements in response to the housing crisis, FHA-insured mortgages have become more and more popular. The FHA now insures more than 25% of mortgages in the United States. Currently if you want to take out an FHA mortgage, you need a minimum down payment of 3.5% of the value of the home. As foreclosures have increased over the last two years the FHA’s cash reserves have dropped below the 2% capital reserves required by Congress. Many in Congress now fear that taxpayers may need to bail out the FHA. More than 3% of FHA insured mortgages are currently in foreclosure, and 1 in 6 FHA mortgages are delinquent.
Representative Scott Garrett proposed legislation last year that would require FHA borrowers to have a minimum down payment of 5%. The FHA estimated that as many as 300,000 homebuyers would have been shut out of the housing market in 2009 if it required a 5% down payment. According to FHA Commissioner David Stevens the increased down payment requirement would add a minimal amount of money to the agency’s coffers and could potentially undermine the housing market.
Stevens says that changes that will be adopted in April will be more effective in generating funds for the agency and have a less punitive effect on the housing market. The changes that have been adopted require a 10% down payment from those with a credit score below 580 and will increase the up-front funding requirement from 1.75% to 2.25%. Additionally, the amount a seller will be allowed to contribute to the buyer to pay for closing costs dropped from 6% to 3%.
It is fairly certain that FHA loans will become more expensive in the near future. Total Mortgage Services is a fully approved FHA lender and offers some of the best current FHA mortgage rates in the industry. Call us today at 877-868-2503 to discuss your FHA borrowing options with one of our mortgage experts.
What do you think about the future of FHA loans? Should the FHA require an increased down payment? Will these proposed guidelines damage the housing recovery? Join in the discussion below.
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