There are important changes you must be aware of if you want to buy a home in 2009 and beyond, and plan to use a federal program such as FHA to do it. The Federal Housing Administration, or FHA for short, is a federal program run by the U.S. Department of Housing and Urban Development that provides mortgage insurance on loans made by approved lenders throughout the country. This protects lenders from losses when borrowers fail to pay their mortgage, and provides incentive to lenders to grant loans that would otherwise have risky characteristics.
One of the largest benefits of FHA lending for the consumer has always been the relatively low down payment required to close a loan. Many consumers were eligible to pay as little as 3% of the home value at the time of purchase. This feature helps buyers with limited available cash to realize the dream of home ownership.
Because of the rampant foreclosure crisis of the past few years, we have learned that home buyers with larger amounts of money invested in a home will be less likely to walk away from their payment obligations. As a result, Congress took initiative this past April and passed the Foreclosure Prevention Act of 2008, which stipulates that the FHA minimum down payment will be increased to 3.5% for any new FHA loan.
While continuing to maintain a relatively low down payment requirement (many banks now require 10% or more to buy a home), this important step seeks to ensure that the foreclosure crisis does not escalate and that serious home buyers invest more money in their newly acquired asset.