Breaking Finance News

FHA Relaxes Down Payment Rules

The Federal Housing Administration (FHA) has announced that it is relaxing the rules governing down payments for home loans in an effort to make buying a home more affordable for more people. Because the FHA insures loans made to potential homeowners to buy homes, it required a considerable down payment for the loans to limit the risk of default. By relaxing its standards and lowering some of its fees, more people will be able to afford the required down payment to purchase a home.

Coming up with enough money for a down payment on a home is one of the biggest barriers to new homeownership. A 10 percent down payment on a modest $150,000 home is $15,000, an astronomical sum for many families seeking to purchase their first home. The requirement that all borrowers with traditional mortgages with down payments of less than 20 percent also pay for mortgage insurance is also a strain on the finances of first time homebuyers. The cost of the mortgage insurance goes down when the down payment on the home is higher, so it makes sense for borrowers to put as much as they can down for the home to limit their future costs.

Both Fannie Mae and Freddie Mac have also introduced new programs aimed at making homeownership more affordable. With these programs, a first time homebuyer can put down as little as 3 percent of the purchase price of the home. There are many rules associated with the new programs to limit them to the potential homeowners that actually need the programs to purchase a home.

Some critics of the programs say that lowering the amount of the down payment required to qualify for mortgage loans increases the risk of default by the borrower. Historically, defaults tend to be higher on homes purchased with lower down payments. It is important to recognize that these loans are not subprime loans issued to borrowers with lousy credit. The borrowers are still required to meet stringent credit score and income requirements to qualify for the loans.

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