As of January 1, 2009 the FHA minimum down payment changed from 3 percent to 3.5 percent. What does this mean in general, and what does this mean to the homebuyer?

FHA, or the Federal Housing Administration is a part of the U.S. Department of Housing and Urban Development (HUD). The program began during the Great Depression as a way for low-income Americans to purchase homes. Today the program exists primarily for people who cannot afford a conventional down payment. While traditional mortgages often require down payments in the tens of thousands of dollars, an FHA loan requires only a small down payment 3.5 percent of the purchase price.

While a much lower percentage than a traditional loan’s down payment, the FHA minimum down payment of 3.5 percent is still a significant amount of money and the increase of .5 percent over 2008’s 3 percent can also be significant. On a $300,000 home, for example, the 3 percent down payment would have been $9,000; the new amount at 3.5 percent is $10,500. While not a great deal of money, the $1,500 is still significant, especially to a potential homeowner saving every penny in order to purchase a home.

The change in the FHA minimum down payment is part of HR 3221, the Housing and Economic Recovery Act of 2008. The law was designed to help borrowers in danger of losing their homes. FHA loans, which had dwindled to the point of almost nonexistence during the housing boom have now doubled their market share, with 12.56 percent of the market in 2008; a number that is expected to rise to nearly 25 percent in 2009.

FHA has helped the credit crunch by making it less of a risk for lenders to provide mortgages. FHA loans come with required mortgage insurance (MIP), ensuring a claim paid to the lender if a homeowner defaults on the loan.

Another highlight of the FHA minimum down payment? The 3.5 percent investment can come in the form of a gift from a family member, charity or employer.

For many homebuyers, first-time or otherwise, even with the FHA minimum down payment change, FHA loans are the way to go.

Jeff Onofrio jonofrio@whatisyourrate.com- Branch Manager-                 National Future Mortgage Inc. www.whatisYourRate.com —                                 Office 856-669-6522