Higher Down Payments, Lower Loan Limits Coming to FHA?

May 25, 2011 No Comments »

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The National Association of Realtors is fighting to keep the high loan limits and low down payments in place for those seeking FHA financing.

As it stands, come October 1, the temporarily elevated FHA loan limits (and conforming loan limit) will drop from the current maximum of $729,750 to just $625,500.

It’ll be even lower in areas of the country for home prices aren’t as high.

NAR estimates an average loan limit reduction of more than $50,000, which they feel will increase mortgage costs and impact mortgage market liquidity.

At the same time, there have been calls for higher down payment requirements on FHA loans.

Some Republicans want a five percent minimum down payment to bolster capital reserves and keep the FHA a viable entity for years to come.

But NAR argues at the current savings rate, it takes almost seven years to save for a five percent down payment on a $200,000 home, and more than 10 years to rustle up enough money for 10 percent down.

“Proposals to further increase FHA down payment requirements are unwarranted,” said NAR President Ron Phipps, in prepared remarks.

“The current 3.5 percent down payment and closing costs represent a significant financial commitment. Requiring a larger down payment does little to reduce risk of default compared to strong underwriting requirements, and only puts home ownership out of reach for many families who have the income necessary to carry the cost of the home purchase.”

The FHA recently introduced a number of underwriting changes, including a minimum credit score and higher mortgage insurance premiums.

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