Update: FHA backs away from no down payment loans

In Ohio if you are credit worthy and then the State of Ohio will give you a free downpayment if you agree to .25% rate increase. It is called OHFA.

I have great credit (835), the 20% down and first time home buyer. But we wont be buying a home for now, despite the great gov program and FHS loans we qualify for. Not because the down payment. so what!

The reason is greedy real estate investors who in our state (Texas) keep buying up distressed properties and are artificially keeping property values sky high, despite the 40% foreclosure rate here. Not falling for it and apparently many here are not.

If you or the gov or the realestate "trolls" want buyers and home owner to come into the market so you can make your "easy money", stop investing in realestate and let the familys come in and drive the price of housing. Its why ARMS were invented to keep investors rich. And now why taxpayers and potential buyers are stuck once again with the bill.

I encourage all home buyers to NOT BUY HOUSES right now, until prices hit rock bottom and drives more greedy investors out of the market. Let them sit on their golden eggs till the tax bills come in. The consumer isnt going to come back into the market till we see a highly regulated market monitored and controlled by the gov and where investors are punished for manipulating the housing prices as they do now all over the US.

What about the USDA RD 100% loans?

I actually had the 3.5% down for the home I am looking at in February. Instead I threw that money away on renting an apartment closer to work not thinking I could ever afford to buy a home (first+last+security+pet deposit). Now if I had waited until this tax credit had shown up I could have afforded to buy a house. I am looking at a fixer home for 75,000. I was excited seeing this tax credit until I saw the 3.5% down. I can save that much but with all my other bills it may take a year to do so and this program ends by the end of the year. I am not irresponsible nor unable to save money. I have a credit score of 717 which is not wonderful but I have been told by my banker is good. I have one credit card, a checking and a savings account through wells fargo. I love having it all in one place. So effecient My bank tells me I am very responsible with my money and that my debt is very low compared to many. I dutifully save every month and have one credit card which I owe 2900 on which is so low compared to many people. But I may not be able to save 3.5% by the dead line for this program. I was really thinking the 8k could be used for the downpayment and closing costs for people who have the suffecient income and are responsible. I do not live outside my means. I was approved by several apartment complexes to have a rent of up to 900 dollars if I wanted. Instead I rented a much smaller place for 525 in order to not develop money problems but because I do not have 3.5% right now today I will be locked out of this tax credit which makes me sad. I wish there was not a dead line on it or they made exceptions for people who manage their money well to use the 8k alone for down payment and closing costs. I do not want a mansion. Just somewhere small I can call my own.

The $8,000 tax credit for First Time Home Buyers is just that, for now. At this point, it cannot be used for a down payment on a home. Simply: If you're a First Time Home Buyer, buy a home by November 30th, and you get the credit. Trying to get clients into a home who don't have the means to put at least 3.5% down is probably not a qualified client. If a Buyer really wants to buy a home, he/she will find a way to get their hands on it – save, beg, or borrow; they will come up with it. Getting someone into a home WITHOUT their own "risk" investment makes it that much easier for them to walk away. I'm sure there are uncontrollable circumstances out there, but statistically speaking, the lowest down payment loans have the higher default rates. I say keep the Tax Credit as a Tax Credit and keep the Down Payment as Down Payment. Put in, then get back; that's fair. Not gimme gimme gimmee….

I saw this article last Friday and I was hoping I would be able to provide information to my clients. The $8000 credit according to the article can be used part down payment and closing cost. This is nice but I cannot find a bank, FHA, HUD or IRS able to provide any information regarding the credit. I have already invested 3.5 hrs on the phone with no luck.

As for myself, I have never understood why anyone making say $85K a year is trying so hard to get into a home in the say $300K. I saw this number time and time again above and really think to start with they are setting themselfs up for failure. I am not college educated, nor is my wife, that said we have a household imcome of over $175k, we live in and own a nice home, with pool and CC golf course comunity in West Houston. We paid $125 for the home that is now worth $175 today. 10% down normal payments and now paid for. All of this done in ten years. Bottom line buy what you can afford. Around 20% of your household income has worked for us.

If you are going to put 3.5% down on your first house plan on staying there for awhile. It will take years to build up the equity for your down payment on your next house.

In January, 2005, my wife and I moved to Miami because I started a new job. We rented a small townhouse. Towards the end of the year we had saved money and wanted to start a family so we began shopping for a 4 BR home. Lennar was building like crazy, so we went to one of their new construction sites and toured a model. We found a model we liked and sat down with one of the agents. He had us pick out floors, paint colors, styles, designs, etc. The price of the home was a bit more than I had thought was possible for us, but the agent made it sound like it would be no problem. Prices were rising fast he said, take advantage of our pre-construction prices, you can sell it in 5 years for a 20% profit. I was hesitating to fill out the mortgage loan application (with their lender of course) when the agent quickly dialed a number on his desk phone, talked with somebody on the other end, and then handed the phone to me. Suddenly I was talking to the mortgage loan officer at Chase. He put the hard sell on me too, and said, in no uncertain terms, that if I was to put a higher than actual salary on the application, there would be no problem getting the loan. Alarms went off in my head and I declined their offer, saying I'd get a loan somewhere else. We really wanted that model though, and so we left half of the initial deposit with them and had a week to come back with the rest. Driving home, I kept thinking about what the guy at Chase said. I could lie about my income on the application and still get the loan. I thought about all the buyers who passed through and heard the same line. I remembered all the red Xs on the map of the development in the agent's office indicating sold lots and wondered how many had lied on their applications. I thought about how home prices were rising quickly and wondered how long it would last. Then I remembered the tech bubble that we had just been through that crushed my former employer and forced us to move in the first place. I ran the numbers in my head during the drive home, and figured we would be pretty much maxed out every month on our mortgage. If the economy suddenly slowed down for any reason, we'd be in big trouble. Suddenly, leaving that deposit seemed like a really bad idea. I went back the next day after work and got my check back. We finally did buy a house in the Spring of 2006. The house wasn't new, but the terms were much more affordable and in accordance with our incomes. Sure, it's value has dropped considerably since the purchase, but we're paying our mortgage regardless and waiting it out. Our 19 month old son doesn't care if we have new floors or not. He's just excited about meeting his baby sister when she's born in September.

A lot of people here seem to mention that 20% is very difficult to save and that it is unfair to have such a high expectation. For example, it's hard to save when you have student loans, high cost of living, other debt, etc. But the reality is, if you want to save money, you have to get rid of your debt first. It doesn't make sense to add the debt of a mortgage (i.e. $300K) to already existing debt. If something goes wrong (e.g. loss in job, forced relocation, etc) you would be up to your ears in debt with no way to repay. Ideally, one should get a mortgage when they have little or no debt. Also, a low down payment in this market isn't wise at all. Try going to Bankrate.com and view an amortization table of a $300K home with 3.5% down. You would easily see that it would take a really long time to gain any significant equity. So supposing, you lose your job in the early years of your repayment, you wouldn't get any return after the sale of your home. In fact, regardless of tax benefits from interest paid, you would probably still LOSE money because of what you paid in property tax, improvements, possible HOA, etc. A large down payment is multifaceted, 1) gives you a stake in your investment (i.e. protects you from loss becuase you have equity), 2) lowers your mortgage to more affordable levels and 3) places more trust in you by your lenders (i.e. easier to get a loan and a good rate). So the moral of today's story is: pay down your debt first, try to sacrifice a little and cut out expenses that aren't necessary (use coupons, generic products, don't eat out ever, etc), and live in a lower rent area that is safe, but in a lower class area relative to your income. Trust me, these things add up. I did the above and since Jan 09, my wife and I saved 50% of our take home salary, and Northern VA is not a cheap place to live.

The real head spinner here is that we draw such a distinction between the timing of a tax return and the closing of a house. Fact is that the credit is an enticement to purchase a home sponsored by our government…hurray. The primary change attributed to this recession is that you actually need to doccument a job and have credit to qualify for the loan. Now that's the real head spinner.

If you ask me I think the problem started with college. 90% of the jobs out there you do not need college education to do well at, but yet companies still demand it. It's like you have to pay for two houses if you want one. I went to a state school, and was constantly told that you need college. Well, the most if has gotten me so far is a job that pays on average 40k, and left me with 40k in loans. If I didn't go to college I could easily afford a house even with my wife not working and two kids.

Anyways, I can afford the monthly payment easily enough, it's the down payment I would have a difficult time saving up for. Over 800 dollars in rent, and the houses I'm looking at are 550 after property taxes, and a 5% down payment.

There is nothing in the US Constitution that says "all people are entitled to own a home". We immigrated to the US in 1961 and my parents worked their butts off to provide 7 children with all the opportunities that this great country offers WITHOUT ANY HANDOUTS. They have purchased several homes cash and never relied on credit of any kind. They taught all of us that if we wanted something we needed to work for it and save for it, which we did. Stop blaming the government for not allowing 100% mortgage financing, that's absurd. We need to take responsibility for ourselves. And I too am in the mortgage business and believe that down payment requirements and good credit are essential to the recovery of our economy. If you can't afford to buy, rent.

As I see it, this was all started from GREED. Starting with the Realestate Agents, right down to the seller. All trying to make the big bucks. If houses weren't priced at what they are (well over 30% higher than what they are worth) at least in my area, then the 3.5 to 20% down wouldn't be such a burden!!!! So put blame where you may. I would start with the people helping to sell the houses. GREED!!!!!!!

To Pat Hairston in NC, a lot of us didn't "move" here where things are expensive. Many of us were born here. Also, if all of us "stupid" people decided to move where housing is cheaper, it would not stay cheap for long. It's about supply and demand.

Garo H,

I disagree with your logic. If incomes are high enough to support a $300k house than incomes should be high enough to allow you to save a $60k downpayment.

If someone is in the midwest and salaries only support a $125k house then it isn't any easier for that person to save up $25k.

3.5% equity in a house is not much to have in the game. Adding 8k from the taxpayers does not buffer it much. Say someone buys a $200k house and puts 3.5% in – $7k, then adds in $8k of government money for a total of $15k equity, or 7.5%. Selling a house takes 6% of your equity away in fees, so they really only have 1.5% equity. In many locations in the US the prices are dropping quick enough that the 1.5% would be gone due to price declines within a couple months.

Most of the buyers of homes only putting 3.5% down will be underwater on their loans by fall. If they have to sell due to loss of a job or a job transfer they will be forced to do a short sale or foreclose.

As a taxpayer, and part-owner of these government backed loans, I don't think 3.5% is enough. I don't want to own that house – a depreciating asset that we will not get back what the person borrowed.

Requiring more down will have the effect of lowering home prices to more affordable levels which will be a good thing.

"No one told you to move to a place where housing is inflated. If enough of you dont buy those ridiculously high priced houses, maybe the price will come down. I dont want to call you stupid for living there..but…."

Arrogrant and ignorant comment. Many people did NOT choose to live on the East or West coast. Many East and West coasters were born there. To move across the country, away from your family/church base, would have more than just a financial impact.

Lucky you who were born, raised, and have family in the mid-West. Stay there.

Before the government got involved in the mortgage lending business, it was the most profitable lending practice for American banks. You needed a 20% down payment. You could only get a fixed rate mortgage. You needed to document your household income in order to buy a home. It was this way for decades, and then the government got involved with enforcing quotas and promoting "affordable housing," which brought the whole thing down.

This is an easy problem to solve, but no one likes the answer. Going back to the policies that were in place pre-1977 is the only way to get out of this. If you cannot afford to purchase a home, then you can rent. That's how it was then, and that's how it should be now.

I'm not sure I understand your comment Ted. You say you have a higher cost of living, but then you mention there are costs people in the Midwest pay for that you don't. You pay nominally more for your expenses (gas for your car, etc.), but we have more expenses that you don't such as heat and A/C. Sounds to me like it would even out.
Salaries are also higher in your area. I work for a large company, and if I moved out West I would get about a ten percent pay increase to do the same job with the same company.

Ted, San Diego, CA:

I don't care where you live, if you can't afford 20%, then how can you afford 100% of your loan amount?

Perhaps if buyers were required to put down 20% in high cost areas, the housing costs wouldn't be so high.

I think some of you need to get off of your high horse. I am a single, young woman who attended a great unviersity, but has had trouble saving for a down payment because of the costs associated with obtaining higher education. I have a great career, good credit and I work hard. Are you telling me that I'm irresponsible with my money because I can't afford a 10% or 20% down payment on a home? I ALWAYS pay the rent for my apartment on time and only look at homes that are comparable to or less than my current rent so that I don't get ahead of myself. Just because someone is unable to save at least 10% on a home does not mean that he/she is incapable of being fiscally responsible. Please stop thinking that the way you obtained your home works for everyone and realize that even those who were able to put 10% to 20% down are now defaulting on their mortgage. Some of us just need some assistance in order to buy a property that we can be proud of and call our own.

The problem with mortgages was with people who signed agreements that they did not fully understand or they blatantly chose to ignore the fine print. My wife and I recently purchased our first home and used the tax credit for our downpayment in a round about way. My inlaws gave us some money for the downpayment and we paid them back when we received the tax refund. My wife and I both have great jobs, great salaries, and excellent credit scores, but because of our student loans, we could not save 20% for a downpayment. We can more than afford our mortgage payment and feel that we are creditworthy. The tax credit was a great way to get first time home buyers like us into our own home.

Back in the 70's when there was a similar mess with housing the tax credit was worth about $11,000 in todays dollars. The credit was available to everyone looking to buy, not just first timers. That effectively wiped out the glut of homes in a very short time. I think todays credit will work, but will work very slowly. 3.5% is needed to make people think twice, but is not too much that it detracts people. Fronting people $8000 for a down payment will prolong the mess.

This is unfair. I am not getting an FHA loan but I am a first time home-buyer. I am putting down 10%. Why am I not eligible to receive this money up front for closing costs or to increase my down payment?

You people from the Midwest have to understand…Location, Location, Location. Of course 3 times the median income makes sense in Middle America, but on the coast it's different. We pay more to live here and we know it. Other things must also be factored in: I don't use my heater in the winter or A/C in the summer (don't need to). Those costs aren't looked at by mortgage underwriters and I work as a mortgage fraud investigator

Not having "skin in the game" wasn't the source of the housing mess. It was people getting into loans with teaser interest rates at the beginning or interest only loans that had payments escalate a few years later. The problem was that the borrower and the lender assumed home values would keep rising and rates would stay low. Well, it didn't. Having "skin in the game", no matter how much, doesn't matter when your home is worth less than the mortgage, you can't make the payments, and the lender's mortgage extinguishes any value you put into the house. Having skin in the game doesn't help you make the payments when you can no longer afford them. The best way to assess risk is looking at past income, job security, and credit score.

I think there are a few good points brought up by the commenters, but nobody seems to be taking into consideration 2 things:

1. 20% down payment for a 30 year old house in need of repair in a moderately popular area in New Jersey could be 20% of $300,000. Not because prices are over-inflated, but because New Jersey has high incomes and high population density (=demand). Saving $60,000 for your first home is a little ridiculous, don't you think? Other parts of the country have different situations, and maybe easier to save for 20%, but sweeping generalizations don't take into account that this country is very varied and housing prices don't just reflect "unrealistic expectations". They reflect local economies.

2. Everyone seems to be assuming that if you put only 3.5% into your first house you have "no skin in the game." I think "skin" is being misrepresented here. Let's assume 3.5% of that $300,000 house, that's $10,500 for your first house. If you've been responsible, working hard to save as much of your $85k/yr household income as possible and have set aside $10,500 for a down payment, that $10,500 represents a LARGE part of your income. It's not about how much of the value of the house that 3.5% represents, it's how much of your personal wealth that 3.5% represents. I guarantee if you ask someone who has been saving for 2+ years just to get to $10,500 if they'd be willing to walk away by being irresponsible with their money, you'd get a resounding "no." 3.5% of the house isn't much, but 12% of your personal income IS "skin in the game."

Summary: 3.5% + $8,000 is enough equity in the house for someone to get started, and probably represents a LARGE portion of their personal wealth. Requiring money from the buyer is a great caveat, but asking for 20% for your first house is unreasonable.

It seems to me that the isn't whether or not the government is offering creative financing. The issue comes down to irresponsible lending practices. Basing the amount of what you can borrow by 33% of you gross income I think is too high. Maybe these rates should be adjusted to ensure responsible lending. Maybe 20% would be more on point. Or you can base this on how much "skin" you put in the game. But borrow my max would have meant that my mortgage would be almost double what my current rent is!!

Nothing has changed. They are trying to make credit available instead of making housing affordable. This perpetuates all the reasons our economies is dying.

The damage is far from over because they won’t even try to cure the disease.

I will not buy a house because I can not afford the asking prices. Screw your available credit and my 820+ credit rating; if the house is not priced correctly I will not buy! Even if you offered me a "-5%" interest rate.

in the West and East coasts, a 3-bedroom, 2-bath home, 1,200 sq feet, in a decent area (no gangs) and good schools (800+ API), housing costs are $600K and up.

No one told you to move to a place where housing is inflated. If enough of you dont buy those ridiculously high priced houses, maybe the price will come down. I dont want to call you stupid for living there..but….

I think all you people out there can voice your opions, but come into our world, the mortgage business,the people who need the money and have the equity can't get financing. The FHA guidelines now require a 620 fico score and with these banks cutting peoples home equity lines dow to there balance and these banks reducing peoples credit crds it is hurting the peoples scores, so because the banks can do what they want before this new law comes into effect in 2010 just keep kicking the people when they are down. Why didn't they pass the law for right now, NO but they can change all the lending requirements from the mortgage end. I wish I could have Obama come and sit in my office for 1 day just to see the average person get turned down. Should the banks change the rules on FHA loans who are they to over rule the Federal Goverment???

This is awful. First they get our hopes up, and then change it. 0 down will help first time home buyers and the economy. Many can afford their house notes, and just need 0 down to get into a house. HUD workers need to gain some common sense.

My fiance and I have just bought our first home. We are in our middle 20's. We both have steady jobs and a steady income. There seems to be quite a few comments stating that if you don't have 20% you shouldn't buy a home. If your going to stimulate the economy you need people buying homes. This program is designed for people starting out. Not for people looking to make a quick buck, which got us into this mess in the first place. It is wrong to assume that because you have less than %20 your going to default. I agree the 0 down is crazy, but 3.5 reasonable. How are people going to build equity?
I would be curious to see how many people really put %20 down.

Uhmmm who is doing the advancing? The government or the lender? What happens if the buyer owes taxes when they file their tax return? All of a sudden, that tax credit they are supposed to use to pay back the advance is now going to pay taxes. How are they going to pay back the advance?

I just purchased a lake home with no money down, actually got money back at signing!!! HINT, HINT it's a buyers market!!!!! I had buyers pay my closing costs and then some, i used my VA Loan, finally all that time paid off. I believe you have to prove your financial worthiness to the lender and let the lender decide what's appropriate for money down not the politicians who get there "buddies" to lower the standards then say they had no idea what was happening…. (Barney Frank). Letting the politicians decide is what got us into this financial meltdown. To bad no one is man enough to stand up and point a finger or god forgive take some blame….

I've never made a down payment and I've bought 3 homes in the last 15 years. I've never missed a mortgage payment, car payment, etc. Why should I not be able to purchase a home with only 3.5% or no down payment?

Let first time homebuyers use first time home buyer programs provided by their state.

If the gov't should be providing tax credits to anyone it should be those who have lost their jobs in all this mess and those whose mortgages are more than what their houses are worth.

If fingers need to be pointed, point them at the lenders that are willing to loan this kind of money with so little down.
Homebuyers would be dumb to put 20% down on a house when it will only lose value or they could lose their jobs. If they put 3.5% down, they hold a LOT of leverage with the bank since the bank knows full well they can just walk.
Who's smarter: the lender who will fork over hundreds of thousands with 3.5% down or the buyer who takes the deal…?

Before anybody can comment on the tax credit and 3.5% downpayment program. Know the facts. The FHA and low down payment program has been around for over 75 years! The program helps folks to become homeowners! If we want to be strict about the down payment and how much is required! Let's go back to the down payment requirement from the 30s, which was 50% of the value of the house. Then only the rich would own homes. If I took a poll of everyone who could afford 10% down+ closing, on a 100k home. I would believe that person(s) obtained the money 1 of 4 ways. 1. gift from a parent/family memeber 2. because you saved for the last 1-2 years 3. large settlement/payout or 4.because your rich!!!!!

"What about someone who pays $1400 dollars a month in rent? Should those people have to change their standard of living to save enough for 20% down when they could easily afford a 200k mortgage?"

YES! That's EXACTLY what they should do! I'm from St. Louis, as well, and spending $1,400/month in rent is completely unnecessary. Either move to a cheaper apartment, a roommate (or more than one), or take on another job. That's the way it's been done for decades, and it worked well. There's no reason to change a proven system simply because people want it all now without having to sacrifice anything for it. Creative financing is the very thing that enabled the ridiculous housing prices (especially on the east and west coasts) in the first place, and it must be eliminated, not encouraged.

Additionally, paying $1400/month in rent doesn't mean someone is necessarily responsible enough for home ownership. Houses come with far more than the monthly mortgage payment; there are real estate taxes, private mortgage insurance (for those who put down less than 20%), homeowner's insurance, maintenance/upkeep, etc. All of this can add up to far more than the monthly mortgage payment.

Debt to income determines your ability to repay.

Previous credit history can help predict your pattern on how you pay.

Your current housing expense relative to your new housing expense helps determine risk.

If you put 25,000 down and borrow 100,000 or you put 0 down and borrow 100,000, is this more risky?

In times of distress, the person that keeps the 25,000 in the bank is much better off then using it as a down payment.

Id feel safer lending someone money that has savings, than someone that just used all their savings to buy a home.

People don't miss their payments because they didn't put money down, they miss their payment because of circumstances usually outside their control reduces their income.

Loan to value means squat.

Look at the people that purchased a home and put money down, now they owe more than they financed and if they have a hardship they probably don't have any money to draw on because they put money down.

Responsible and accurate financial assesments and education on what someone really should be able to afford not loan to value is what is needed.

Bring back 100% financing, make the credit and debt to income toughter.

100% financing is what is needed.

We need people to have the ability to buy homes. To get rid of the excess inventory.

Until the inventory reduces, home prices will never go back up.

100% financing is what we need.

Everyone on this board who is suggesting a certain percentage required for a down payment is probably suggesting what they personally put down to be the measuring rod. Don't subject Americans who desire a home to your personal financing standards. If you feel you have a solid savings plan, steady income, and your debt to income ratio isn't greater than 35-40%, having 20% is moot if you are staying within your mortage budget range. If you were a first-time homebuyer and putting down the "normal" 20% and filed ammended taxes for the $8k, can I call you greedy?

"The 20% down payment requirement is a sensible policy — if you live in the mid-West where housing costs are reasonable (eg> 3x the avg. household income). However, in the West and East coasts, a 3-bedroom, 2-bath home, 1,200 sq feet, in a decent area (no gangs) and good schools (800+ API), housing costs are $600K and up. At 20% down, that would be $120K — sans additional closing costs. Do any of you have $120K cold cash on hand? I don’t think so."

I agree…as it is in rent my brother and I pay $1400 per month ($800 my part) for an 800 sq ft unit. $100k in Los Angeles will get you a nice Mercedes Benz or BMW 7 series not a house like it would in midwest.

If you really want to analyze were the problem begins you can start with this countries Financial Education or lack of it. The most important skill we need in the world today how to handle money and there simply is not adequate or even close to assuasive levels present in our Educational system. The second stop I would make is the greed of the banking and investor sectors that drove the rise in housing appraisal values. Ultimately had banks used edification in their previous lending practices nobody would care about such a programs existence today. I would much rather my neighbor have $8,000 dollars to live in a house and contribute to the continuation of a community than a Greedy bank have $20 billion to sustain business practices that would lead any other business to its inevitable demise.

waaaaaaaaaaa, what a bunch of crybabies……"how come they get to buy a house with a low downpayment and I had to have a big one……waaaaaaaaaaaaaaaaa".

I too hate that the government is giving away tons of our money. But, my parents got their "20%" from family memebers who died.. it was not that my parents didn't pay their bills.. its just harder to save that much money when you have kids and bills already.. My rent on the home I live in is only slightly less then the Mortgage I am seeking.. I pay my bills, but like my parents, I am raising a family on modest, but comfortable income.. If I can get into a home this year because of this offer, I think that is great.. its great for me, and great for the housing market and great for the economy

If you can't afford to put down a 3.5% down payment (without the tax credit), then you can't afford to buy a home. No lender should be loaning money with less than a 20% down payment under any circumstances. It's irresponsible and the reason for this mess in the first place. Everyone should just shutup and either make their mortgage payments or keep renting. Nobody owes you a house.

People who have little or no down payment money are clearly living on the edge and have no business buying ANY house.That's how we determine RISK.
By the way, what is going to keep the mortgage company from using the fed money for a down payment, and saying "oh yeah, we'll just write down this money as coming from YOU, not the government" (wink, wink, nudge, nudge).
Where is the so-called "oversight" going to come from? This is starting to sound like Real Estate 2001-2006 all over again.

BTW, $8,000 is 3.5% of $228,571 !!!

Who among you would lend $220,571 of HIS OWN MONEY to someone who couldn't come up with the other measly $8k ???

Not me. The borrower's skin must be in.

The 20% down payment requirement is a sensible policy — if you live in the mid-West where housing costs are reasonable (eg> 3x the avg. household income). However, in the West and East coasts, a 3-bedroom, 2-bath home, 1,200 sq feet, in a decent area (no gangs) and good schools (800+ API), housing costs are $600K and up. At 20% down, that would be $120K — sans additional closing costs. Do any of you have $120K cold cash on hand? I don't think so.

Hurrah ! We need to keep these things in force:
– Buyers must make a significant down payment, 'skin in the game', whether it's 3.5, 10, 20 or whatever % (bigger is better)
– Conforming loan limits (too high) must be brought back down to earth (why do we need a $417k+ loan in a country where the average home price is $176k ?)
– Lenders must qualify the borrowers' ability to repay the loan at 30-year fixed rates or the lenders eat losses
– Restore the assumable loan (loan stays with the property when it's sold) so that buyers don't have to seek new financing automatically for all purchases

The average American makes $40k per year, so a $1,000 per month mortgage is the outer limit for the average buyer, and this translates to less than a $200k mortgage that can be shouldered.

Let's get our prices and finances back down to reality.

As a first-time home buyer (closing this month) in an urban market of Chicago, Illinois, I can assure you putting 10% on a 190k-210k loan is next to impossible w/o some outside assistance (whether Gov't, friends or family). On top of that, you have to consider PMI in that mix, which if you haven't been paying attention to PMI rates, they’re rough $250/mo on a 200k loan – marking it next to impossible to secure traditional funding. I would love to put down 10-20%, but in an urban market like Chicago, LA or New York that just not possible. At this point, you really do need some Gov’t support while PMI and property underwriting standards are so strict.

What about someone who pays $1400 dollars a month in rent? Should those people have to change their standard of living to save enough for 20% down when they could easily afford a 200k mortgage? Just because that's the way you did it doesnt mean it's the only right way. If you increase the standards required of a borrower (net/gross income restrictions, monthly expenses, etc) you can easily control the influx of bad applications. Just because a person doesnt have 20k saved up doesnt mean they arent responsible enough to own a home….

"…how on earth are values ever going to come back if it doesnt start at level one…"

That's exactly the problem. Values were, and still are, much too high. Traditionally, housing has been considered "affordable" when the median home price was 2.5-3.0 times the median income. Prices haven't met that ratio for years, and are still a ways away from this mark. Without creative financing, housing can become affordable again, and saving a 20% down payment won't seem so daunting.

Assuming the median income is around $43,000/year, the median home should be selling for $107,500 to $129,000. The median home is still selling for around $150,000, and incomes are falling. IIRC, the median home sold for nearly $230,000 at the peak of this housing boom. 20% of $129,000 ($25,800) is a much more reasonable savings target than is 20% of $230,000 ($46,000). Housing had gotten to the point that people were spending too much on it and thereby not having enough money to spend on other things. Propping up housing prices with "creative financing" isn't the answer. Allowing prices to fall to a reasonable, historically affordable level is the answer.

To Tim in MI:

You really know what you are talking about!! FHA is the Federal Government.
FHA is an insurance program via HUD that insures lenders in the event of a default on an insured loan.

FYI this program has been around for years and until recently only required 3% down.

VA loans(Veteran's Administration) still gives 100% financing.

I agree that FNMA and FHLMC were influenced by the politicians to make money easy to get. In the end it was profits and the belief that homes always appreciate that put us in this situation.

For those of you trying to stay current; HUD Mortgagee letter 09-15 was passed on Friday May 29th. Therefore, this article is old news. As long as your state or approved local agency creates a program to lend or front 1st-time home buyers their tax credit, it can be used as part of your down payment when applying for a FHA loan.

The only reason I was able to purchase my home was through the use of an 80/20 loan. I've made every payment on time for the past 4 and a half years now. If I hadnt gotten said 80/20 loan, I would still be living with my parents or an apartment throwing money away for the past 4 and a half years trying to save for a decent down payment. Not everyone that does the zero down payment loans are defaulting and financial messes.

I hope that all of the people complaining that individuals taking advantage of this program saved their own down payments and had the "normal" 20%. Before you comment, ask yourself if you got any assistance from a family member or friend. If so, then please save your b.s. If you did save, wouldn't it have been better to have the home earlier? I dont agree with the tax credit [or other stimulus] but if the gov. is going to give it out it doesn't make sense to make people wait 6 weeks to get it [after restating 2008 return]. And to Rick M., creative financing is what drives not only housing, but all business. Every company has departments devoted to it, aptly named Finance. Even small businesses get SBA loans. Is that "creative" as well?

"Just because someone doesn’t qualify for a loan because of some tight-ass standards set by people that have never had financial problems at all ever in their life doesn’t mean they can’t or won’t pay their payments."

Oh, yes, that's the "American way" of fixing everything! We prefer quick, easy fixes to hard work and determination. If our children aren't doing well enough in schools, we lower the standards because they must be too high. If people don't have the self-discipline or means to save a 20% down payment on a house, give them creative financing, because everyone deserves to "own" a home!

Absolutely ridiculous. Making the sacrifices and putting in the hard work to save a down payment is what demonstrates to the bank that you have the discipline to make sacrifices and do whatever you must to make your mortgage payments on time and keep your home. If you can't save the 20%, then you're a much riskier borrower than someone who can. We didn't have mortgage crises that threatened to demolish the entire economy before "creative financing" when most everyone put 20% down on a 15 or 30 year mortgage.

Thanks for the info Carla. I believe the credit is available for all loans closed by December 1st not just those insured by FHA. Can you please confirm?

3.5% down? What ever happened to 10% or 20% down?

Here we go again….yes you have to have a down payment, but Uncle Sam is making that for you…

As a Realtor, I agree that buyers should be required to come up with money down. When we bought our first home, we had to wait until we had 5%. I've also read here that requiring 3.5% wouldn't have saved us from this current situation where values have dropped as much as 50%. Here I disagree – I saw dozens of people buying homes with 0% down, so they bought as much as they could with no risk. Even 3.5% down minimum would have created enough risk to keep many of them out in the first place. We must learn from this and not repeat it in a different manner.

I see two ridiculous concepts. First, that a tax credit would be used to satisfy a down payment requirement. Second, that the down payment is only 3.5%. A minimum of 10% down payment should be required and the down payment should be funds from the borrower's own money….. not a tax credit, not a second mortgage and not some other kind of loan. Most who are not able to save up 10% are likely not skilled at managing their money and are a larger credit risk. Perhaps in certain hardship cases it could be dropped to 5%, but the vast majority should have to prove they are least able to manage money to some extent.

The last thing we need is to start loaning money to people who can't handle the debt.

There is merit to providing low down-payment loans to qualified buyers who meet strict underwriting standards including income verification. In high cost areas of the country, someone may have a steady job & recurring income, but little ability to save enough for a down-payment (ie – making $55,000 w. 2 kids affords rent + the essentials). This group of people should not be completely dismissed.

I utilized the FHA loan w/ a minimum down payment (I think 1.5% maybe?) to purchase my first home. I saw it as a vehicle to save capital that would be needed for other things (i.e. furniture, utility deposits, etc.). I made all of my payments on time and eventually sold it for a profit when I got married. The idea of the FHA loan is great but the requirements for it do need to be strict.

Those of you who are against this tax credit as downpayment assistance…how on earth are values ever going to come back if it doesnt start at level one. This creates an opportunity to own for less than what rent costs…with guidelines as tight as they are where is all the inventory / values going? Nowhere. Down payment assistance was a great tool and now the politicians have completely ruined this and now are trying to set something up that essentially was the same thing…genius!?

You forgot to mention that the FHA Mortgagee Letter does allow State & Local Housing Agencies to make loans as "Secondary Financing" that can cover the 3.5% borrower downpayment. Is is only mortgage lenders that cannot advance the 3.5% borrower downpayment.

This was just one more example of the "cookie jar syndrome" that our current government and it's lobbyists have. If neither momma nor dad (fannie and freddie) will give you one, go ask grampa(FHA. The government is now the one spending money it doesn't have, and they want us to start doing the same thing all over again. These are fixes?

It's a credit that can be applied. They still have to qualify and they still have to have skin in the game. Nothing really creative about it Rick. DTI/LTV will still have to have the correct ratio's And the LTV ratio has been increased by 0.5

Thank Goodness they are not allowing it. Isn't that why we are in the mess wee are in right now? How can you allow people with no money to buy homes?

If you can't afford to buy a home without borrowing 3.5% from your family and friends and $8,000 from a tax credit, you probably can't afford to buy a home.

I don't know why the FHA is making 3.5% down loans to begin with. Home buyers that are getting $8,000 in free money should have more than 3.5% of skin in the game.

Should we be surprised that the entity (our government) that created this mess in the first place using Fannie Mae and Freddie Mac as the conduits are now trying to use the FHA in a similar fashion. Maybe they want to take over the FHA in the future also when it goes bankrupt. When I first read about that program I could not believe what I was reading. Our government seems determined to prolong this agony instead of getting it over with. It seems that they have determined that everyone is entightled to own a home.

I couldn't have said it better myself Rick

I'm sorry there Mr. McDaniel, but I got my home by means of 'creative financing' and I'm making my payments on time every month and have been for over 5 years now.

Just because someone doesn't qualify for a loan because of some tight-ass standards set by people that have never had financial problems at all ever in their life doesn't mean they can't or won't pay their payments.

This is a joke. Many of those people who are using the 3.5% down payment program are borrowing money from family/friends and paying them back with the tax credit. Also, they are getting the tax credit regardless, so to say taxpayers are not footing the bill for first time homebuyers is not true. If we are going to hand them money, why not allow them to use that money toward a down payment on a home. Making first time buyers put $3,500 (on a $100,000 home) of their own money into the home, and THEN giving them $8,000 is ridiculous. Why not just give them $8,000 to put down on the home. It solves two problems: 1. More people will be able to buy homes which will eat up the gluttony of unsold homes on the market and spur new home builders. 2. It will place a cushion of equity in the home so the homeowner will not be so leveraged and will have an easier time selling or refinancing in the future. The elimination of no money down FHA programs makes less than zero sense. 3.5% down would not have saved us from the situation we are in now. In areas where foreclosures are bad home prices have dropped 15%, 20%, even more. So what is the goal? If you want to price out borrowers with no assets, make the minimum down payment 10%. If you want to open up home ownership, bring back seller funded down payment assistance. This 3.5% down payment solves neither problem. Giving homeowners another $8,000 of taxpayer money does not spur more home sales. They NEED this money to GET the home. Don't just give them cash, give them the key to resonable home ownership.

Wasn't that how this mess was created in the first place?

There should be no loans for anyone who doesn't fully qualify for them, and who makes a proper down payment, and who can properly handle their mortgage payments.

The era of "creative financing" needs to be history.