Down Payment Requirements…

HUD $100 Down Homes: The Department of Housing and Urban Development (HUD) who re-sells government owned FHA foreclosures, provides owner/occupants with the ability to purchase some of it’s homes for $100 Down. The $100 down payment incentive is only for Owner/Occupant (Non-Investor) purchasers of HUD homes for sale using FHA financing. The normal down payment for a FHA loan is 3.5%. The HUD $100 Down Payment Incentive Program has to be on the executed contract presented to HUD’s closing agent.

FHA: The mainstay of financing in this market has been FHA (Federal Housing Authority). FHA financing currently requires a 3.5% down payment. FHA lending limits vary based on a variety of housing types and the state and county in which the property is located. In Alabama (all counties except Baldwin) the current cap on qualified single-family properties is: $271,050.

This time last year (January 2010) the FHA announced plans to raise the FHA minimum down payment from 3.5% to 5%. Fortunately this change has not yet been adopted. But at the same time it has not been abandoned either.

Conventional Loans: There was a time when it was very common for a home owner (purchaser) to save for their home purchase to provide a minimum 10% and quite commonly a 20% down payment. However, a significant change in the policies for conventional financing occurred in the 1990s, such that prior to the current housing market crisis, conventional financing was the principal method of home financing because of its more flexible and sometimes overly “creative” terms. However, with the banking issues resulting from much of that flexibility, there have been changes toward what was once the norm.

In the current market, the best credit risks can secure conventional financing with as little as 5% down. Increasingly, we are seeing an upward movement toward 10% down payments. Recent statistics indicate that the average down payment for new conventional mortgages is just above 15%. And with current proposals from mortgage giants like Wells Faro (according to the Wall Street Journal) there are efforts underway to raise the down payment requirements for Conventional loans to a rate of 30% to avoid the new government mandates that lenders retain a 5% stake in all securitized loans.

This so-called “risk retention” is related to new regulations required by the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010. The goal is to ensure that banks and lenders that write risky mortgages retain some of that risk to promote responsible lending.

Page 2 of 3 | Previous page | Next page