US Economy: Borrowers to Produce more Cash for Mortgage

US Economy: FHA plans to Require Borrowers to produce more cash for Down Payments for Home Mortgage

According to WashingtonPost,

The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials.

These policy changes, scheduled to be announced on Wednesday, are part of the agency's effort to beef up its ailing finances, which have been eroded by rising defaults in its increasingly popular flagship mortgage insurance program. The FHA currently backs about 30 percent of all loans for home purchases and 20 percent of refinanced loans.

Under this plan, the agency would increase the up-front insurance premium that borrowers pay at the closing table from 1.75 percent to 2.25 percent of the loan's value starting this spring.

Now, for the Americans, this is a problem i think. The FHA has taken the wise decision to tighten the lending rules. So that the only qualified borrowers ask for the loan. However, the problem is that, Most of the Americans are highly unqualified for taking any kind of debt.

So by FHA’s this move, less borrowers now will qualify for the loans. And less people will borrow money. Because not the all the borrowers can put the high up front down payment. This will further worsen the situation.

According to me, putting higher down payment for a home loan is a great financial decision. This is because the more money you put as a down payment, the less amount remains to be paid and thus in the long run, you will end up with less interests and less tax.

So according to me, you should put at least 20% of Down payment of the Property Value.