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FHA Downpayments Set to Rise on Jan. 1
At the start of the new year, home buyers who use Federal Housing Administration mortgages for their financing will be required to make a higher downpayment, one of many changes to the FHA single-family mortgage program resulting from recent changes in the law.
Currently, FHA borrowers are required to make a contribution of 3%, which can be applied toward both the downpayment and closing costs. The current maximum loan-to-value (LTV) ratios are 97.75% for loans greater than $125,000 in states and territories that have “high” closing costs and 97.15% in those with “low” closing costs.
(For a list of the high and low closing cost locations, click here.)
As of Jan. 1, FHA home buyers will have to make a cash contribution of 3.5%, and the new law makes no mention of “closing costs.” In Mortgagee Letter 2008-23, the FHA has interpreted this change to mean that closing costs will no longer be factored into the mortgage/downpayment calculation.
The maximum mortgage amount under the new law is calculated by applying 96.5% to the lesser of either the appraiser’s estimate of value or the contract price for the property.
Sellers will still be permitted to provide financing concessions up to 6% of the sales price (or value, if less), which can include closing costs. Other inducements to purchase must be deducted from the sales price or value, as appropriate, in calculating the maximum mortgage amount and downpayment.
Here is a comparison of the downpayment requirements under the current and under the new law for a home in a “high” closing cost state, assuming that the appraised value is at least equal to the sales price:
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$220,000 |
- Current Maximum Mortgage:
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$215,050 (97.75% of $220,000) |
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$4,950 |
- Minimum Buyer Cash Contribution:
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$6,600 (3% of $220,000) |
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$212,300 (96.5% of $220,000) |
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$7,700 (3.5% of $220,000) | NAHB is investigating regulatory and legislative options to address this situation.
For more information, e-mail Bill Renner at NAHB, or call him at 800-368-5242 x8597.
 Attend the NAHB Construction Forecast Conference on Oct. 22
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To learn more, visit www.HousingEconomics.com.
 Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
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For assistance, call the NAHB Member Service Center at 800-368-5242.
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