Once upon a time, way back in 2005 and 2006, you could buy a duplex with no money down.
Then the housing crisis happened. And in an effort to make sure buyers had more at stake, banks decided they would only give loans to investors with 20 to 25 percent down, or owner occupants who qualified for FHA insured financing and had three percent for a down payment.
Then the Federal Housing Administration decided they would only insure loans of owner occupants who had 3.5 percent for a down payment.
Fair enough. That increase didn’t deter too many borrowers.
However, according to a report in the Wall Street Journal, a bill now in Congress advocates for FHA insured loans to require a 5 percent down payment. The thinking goes that if borrowers have a bigger equity position, they are less likely to default.
While that still doesn’t seem like nearly as big of a jump as a 20 percent down payment would, FHA Commissioner David Stevens testified that slight adjustment would eliminate 40 percent of new FHA loans; the equivalent of 300,000 transactions a year.
Fewer sales would, of course, result in fewer mortgage insurance premiums being paid to FHA, which doesn’t make loans, but simply insures them. This loss of revenue, Stevens contends, would in turn put the already financially stressed institution on still shakier ground.
No word on which way Congress is leaning. The imminent expiration of the first time and repeat home buyer tax credits, looming interest rate increases and the threat of higher down payments, however, mean now is the perfect time to buy.