FHA Down Payment Guidelines May Change

There has been a new bill proposed by Congressman Scott Garrett (R-N.J.) that would require a larger down payment on FHA home loans, and also eliminate FHA financing of closing costs.

If the bill passes, the minimum down payment for FHA loans would be 5% instead of 3.5%. Currently, some closing costs can be financed as part of an FHA new home loan, but that would also change.

FHA Mortgage Rates

FHA Mortgage Insurance

FHA mortgage loans can be flexible on credit scores and debt ratios, but FHA loans also require an up-front mortgage insurance premium of 1.75%. In addition to the up-front premium payment, there is a monthly mortgage insurance premium of .5% added onto the monthly payment. This is similar to paying mortgage insurance on conventional home loans over 80% loan to value.

FHA Loan Pros and Cons

FHA home loans can be advantageous for some borrowers, because of their flexible guidelines for accepting lower credit scores, higher debt ratios, and the amount of cash out allowed. The disadvantage is FHA home loans require a mortgage insurance premium of 1.75%, which is usually deducted from the loan amount on a refinance. There is also a monthly mortgage insurance premium of .5% added onto the monthly payment. This is similar to paying mortgage insurance on conventional home loans over 80% loan to value.