The House Financial Services Committee drafted legislation (the FHA Rural Regulatory Improvement Act of 2011) that seeks to raise the required down payment on Federal Housing Administration-backed loans to 5 percent, and would also lock home buyers out of financing closing costs.
This proposal has been denounced by Mortgage Bankers Association, the National Association of Realtors, and the National Association of Home Builders. It’s still not clear if or when this proposal will move forward, but one thing is certain: at the time of this writing, buyers can currently secure an FHA loan with just a 3.5 percent down payment and, in most cases, roll closing costs into the loan as well.
Current Down Payment Structure Keeps Homes Within Reach
Even though buyers can get into a home with a down payment of as little as 3.5 percent, that minimum is extended only to buyers with good credit scores (at least 580). Buyers with a FICO score of 579 or lower will need to make a down payment of 10 percent. Also, the FHA program has high standards for the underwriting process, including income verification and other documentation. This ensures that home buyers are truly invested in their property, and also lowers the default rate and makes for a much less risky loan on the lender side of things.
Under the FHA program, if you purchase a $600,000 house under the program, you’ll need to provide as little as $21,000 in the form of a down payment to close escrow. (No money loans are a challenge in today’s market – be sure to ask your mortgage professional for more details on this topic.) HERA limits set in July 2008, and extended in subsequent years, are set to revert soon: “Barring Congressional action, FHA loan limits will revert back to loan limits determined under HERA for loans insured by FHA on or after October 1, 2011.”) But if you can afford to pay 10 percent down, to cover the excess, you can potentially get into a pricier house. With the U.S. Department of Housing and Urban Development reporting a 2008 median home sale price of $560,000 in Orange County, this means a lot of options are open to Orange County home buyers.
Obviously, legislation like this could affect Orange County home loan rates. If you want to buy in Orange County with a FHA Loan, act now to make sure you have all the options available to you.