As of January 1st, 2009 the federal government has changed the minimum down payment requirement for home buyers applying for new FHA home loans. The minimum down payment has gone from 3% to 3.5%. Before January 1st, 2009 the maximum loan to value ratio (amount of mortgage vs appraised value of the property) for government backed housing loans was 97%. As of January 1st, it has been lowered to 96.5%; therefore you now need 3.5% down to buy a new house with a FHA loan. Government backed loans will also still require PMI (Private Mortgage Insurance) for loans with less than 20% down.
So what does this mean for the average person looking to buy a new home? It means not only does a home buyer’s credit score need to be higher than it was a few years ago, but it also means that he will have to struggle harder to come up with a larger down payment during a time when stocks and retirement funds are losing their values at an unprecedented pace. Before January 1st, 2009 a $300,000 house required a 3% down payment of $9,000. As of January 1st, 2009 a home buyer will need a down payment of $10,500 to buy the same house.
Consumers may look at these numbers and think, “No big deal, it’s not that much of a difference.” However; before the new down payment requirements went into effect, closing costs and appraisal fees were often counted as part of a home buyer’s down payment. As of January 1, 2009 closing costs and appraisal fees are not included as part of a home buyer’s down payment. Some homeowners may be paying as much as 5% down or more when they settle on a new home!
There are a few bright spots on an endless amount of paperwork seemingly clouded with red, as in, “in the negative”. FHA loans that are acquired for renovations, energy efficient loans and loans for disaster victims do not have to meet the new down payment regulations.