Gov't looking into increasing down payment for FHA loans - Bad idea!

The minimum down payment for borrowers looking to obtain an FHA loan for the purchase of a home currently sits at 3.5%. However, a bill introduced to congress last month by Representative Scott Garrett, a New Jersey Republican, aims to increase the down payment to a minimum of 5%.

In addition, the new bill would also prohibit the FHA from letting borrowers roll their closing costs into the outstanding balance of the loan. Thus, further increasing the minimum out of pocket contributions by home buyers.

This comes at a time where FHA financing continues to play a larger and larger role in insuring new home mortgages. However, with an increased percentage of the current marketplace also comes increased risk. As a result, the FHA said in a Sept. 18 statement that it's tightening credit and appraisal standards and appointing a chief risk officer.

However, there has been no indication from the FHA that an increase in down payment is yet necessary to manage their increasing role in the housing market. And in a time when more and more first time home buyers are purchasing homes in the current marketplace, the potential passage of such a proposal could certainly put the process out of reach for certain buyers.
At this point this bill has yet to move forward and would need approval from the House of Representatives before moving forward.