Bridget's Blog


5% Down On FHA loans? Really?

5% Down On FHA loans? Really?

Looks like our elected officials are at it again.  They are trying to fix the housing crisis by increasing the cost to purchase.  FHA loans (Federal Housing Administration) are backed by the government and insured through up-front and monthly mortgage insurance paid by the borrower and required by the program.

The thought is that increasing the required FHA down payment from 3.5% to 5% will shore up the coffers of the government backed FHA mortgage program.  In real dollars, this means that on a $200,000 mortgage, the required down payment will increase from $7000 to $10,000.

In the last few years, the required down payment has already increased from 2.25%, and the monthly mortgage insurance has increased from .5% to 1.15% of the monthly payment.

For the majority of borrowers these increases to the monthly mortgage insurance has already decreased their buying power. 

In my opinion, an increase of the down payment required will:

  1. decrease the buying power of first time home buyers even further
  2. lower the number of credit-worthy borrowers who can qualify for a mortgage
  3. drop the prices on an already greatly declined housing market
  4. increase the use of down payment assistance (usually local government subsidies), decreasing the "skin in the game" for first time buyers
  5. further decrease the number of move-up buyers, already short on equity giving them less money to put down on a new home.  It is noted that move-up buyers don't typically qualify for down-payment assistance programs.

According to reports, in March of 2010 when the increase was previously proposed:

An increase in down payments to 5%, from the current minimum 3.5%, would limit new FHA-backed loans by 40%, equivalent to 300,000 fewer home sales, according to testimony that FHA Commissioner David Stevens is set to deliver on Thursday [03/11/10].

“We share the goal of increasing equity in home purchase transactions, but determined after extensive evaluation that such a proposal would adversely impact the housing market recovery,” Mr. Stevens says in his testimony.

Since that time we have seen an increase in foreclosures,  short sales has become an every day phrase, a tightening of credit requirements across the board, and a decrease in home sales. 

Although I don't want to spend my tax dollars to bail out yet another program, I don't believe that this increase will help the consumer.  The only thing this does is to lessen the risk (slightly) to the banks.

Instead of making yet another change to the mortgage requirements, let's police the banks and determine exactly what has happened to the over 11 TRILLION DOLLARS that was supposed to help stabilize our economy.  I don't know about you, but I don't feel too stable! Our government is putting its finger in the pin hole leak instead of quadruple sand-bagging around the money that has already been spent or promised.

In the meantime, if you are sitting on the fence and plan on using an FHA loan to purchase a home, you may want to step up the home search or plan on shoring up your savings plan. 

If you would like help with a budget to help to ensure you are mortgage ready in Maryland, no matter what the up-coming changes, give your favorite mortgage loan officer a call. If you don't have a favorite, call me, Mortgage Mama. I will become your favorite!

5% Down On FHA loans? Really?


Warm Regards,

Bridget McGee  Maryland Mortgage Mama  NMLS# 196068  SWBC Mortgage.   410-960-2061 EHO or


If you are considering purchasing a home in Maryland and want to be sure you are mortgage ready, my brother Tony and I will be happy to help! We help to make the mortgage process a pleasure! 

If you already own your home, we are happy to provide a no-cost mortgage review to help you to determine if refinancing may be in your best interest.  Please contact me at 410-960-2061.

Comment balloon 8 commentsBridget "Mortgage Mama" McGee • May 26 2011 06:14PM



There are always unintended consequences whenever the government intervenes. I agree that if the 5% down is implemented, there will be fewer home sales.


Posted by Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Coldwell Banker Residential Brokerage) about 9 years ago

FHA loses millions by turning down short sale offers, then foreclosing and selling for less than the short sale offer. Why don't they fix that process?

Posted by Dave Halpern, Louisville Short Sale Expert (Keller Williams Realty Louisville East (502) 664-7827) about 9 years ago

This is riduculous. Clearly we don't need any more government intervention - and more programs that don't work and in fact make things worse.  Leave it as it is - go solve a issue that needs solving. Raising downpayment levels to purchase at home - in our current climate will further bring the economy down. 


Posted by Anna Banana Kruchten Arizona's Top Banana!, 602-380-4886 (HomeSmart Real Estate BR030809000) about 9 years ago

Seems ridiculous to me.  Earlier there was a blog advocating 20% down for all mortgages.  Can you imagine what that would do to our housing market?

Posted by Dr. Stacey-Ann Baugh, A doctor who makes house calls. (Century 21 New Millennium) about 9 years ago

Good Grief, it's insanity. I can't understand how "out of the loop," they are with the realty of this economy and the housing market. We need to fix it - not further erode things. ARGH>

Posted by Debb Janes EcoBroker and Bernie Stea JD, REALTORS® in Clark County, WA (ViewHomes of Clark County - Nature As Neighbors) about 9 years ago

Oh!  Say it isn't so!  I heard this yesterday.  Can you elieve it?  Just when we are starting to get some traction they want to blow it up! 


Posted by Lisa Wetzel, CDPE, SFR (RE/MAX Realty Affiliates) about 9 years ago

Bridget, just goes to show you that our elected and appointed officials need to get out of things that they don't understand. They are the ones who got us into this mess!

Posted by Jon Cagle, Lane County Oregon - Direct FHA, VA, USDA Lender (Senior Loan Officer at US Bank Home Mortgage) about 9 years ago

Richard, Way too much government intervention.  They keep changing things and before they see if the changes are making any difference they change them again....makes no sense!!

Dave,  FHA is insuring these loans,  the banks are making a mint by not taking care of these short sales and FHA is losing a ton of money and the American people are losing out!

Anna, Thanks of for the feature, I wish they had someone in charge who actually understood the home buying process.

Stacey,  20% down is unrealistic...what are they thinking??

Debb, I have to agree with AARGH!!

Lisa,  Homes are selling, short sales are moving...sadly the changes have just begun!

Jon, This has been going on for years.  The elected officials are not the ones that need the down payment assistance or the low down payment loans.  They just shift money from one investment to another...out of touch!

Posted by Bridget "Mortgage Mama" McGee, Maryland Mortgage Mama NMLS#196068 (SWBC Mortgage 410-960-2061) about 9 years ago