FHA Drops Zero-Down Proposal

Memphis has a very high percentage of HUD loans as compared to the rest of the nation, so this news is a very welcomed one.

The Department of Housing and Urban Development will not seek a zero-down payment option as part of its Federal Housing Administration reform package, HUD Secretary Alphonso Jackson has told a congressional panel. "We will remove from the legislation the zero down payment," Secretary Jackson told House appropriators. The HUD secretary noted that there is resistance in the Senate to the zero-down option, and he has agreed to maintain a minimum down payment. "Whether it is 1% down or 2% down, there should be something paid down to give the people incentives to make sure they understand what it takes to be a homeowner," Mr. Jackson said. The FHA now has a 3% down payment requirement, and it wants the flexibility to adjust the down payment along with mortgage insurance premiums based on the borrower's credit profile and resources.

The good news, in my opinion, is both that they are not going to request a zero down and that they are asking for flexibility based on a borrower's credit profile. They should take it a step further and require that the borrower pay the 1% or so themselves. Right now in Memphis, it is common place just to add the 3% in to the selling price and have the sellers pay the 3% through a charitable contribution. Government loopholes, you gotta love 'em. (yes I've used them too)

Why not have a zero down payment for FHA loans?

• Memphis is currently the HUD foreclosure capital of the world (not bragging). The nation as a whole does not need to "give the farm away". People need to have an understanding that they have something to loose other than just the home.
• Especially the "less sophisticated" in financial matters; need to realize that they are purchasing the home and it is not something that is given to them to be simply taken away later if they miss a payment or two.

Why to lower the amount of the 3% requirement?

•  On a $150,000 loan, 3% is $4,500 dollars. Add that to the closing costs, points, pre-paids, home inspection, appraisal, etc. and it adds up pretty quickly. It could easily add up to $10,000 total by the time it is all said and done. There are a whole lot of working families out there that can qualify for a $150,000 dollar loan that don't have $10,000 cash lying around.
• That 3% won't be added on to the price of the homes, so the sales prices will more closely match the actual value of the home being purchased. This helps not to create an upward spiraling affect in the purchase price of homes as I believe we saw here in Memphis during the finance boom of a few years past.
• It will allow more households to purchase home. There are families in rental properties, whether it be apartments or homes; that are paying $1,400 a month in rent, but can't come up with the cash to acquire a $1,200 a month mortgage.  

Everyone else in the industry uses a credit  profile to determine the interest rates, etc on a loan. It only makes sense that HUD would be allowed to use the same data to determine their requirements as well. Slightly higher Mortgage Insurance for more troubled credit scores and so forth. All in  all, a step in the right direction (JMHO).

Feel free to contact us about current FHA and other HUD program requirements.

• HUD

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