“It’s going to be harder to get a government-backed mortgage from now on.
Looking to shore up its weakening finances, the Federal Housing Administration is set to announce stricter standards on Wednesday.
The agency, which insured nearly a third of new mortgages in 2009, will increase the premium it charges for its mortgage insurance and require those with weaker credit scores to come up with larger downpayments.”
The government is finally getting around to a new way of doing things. Generally people who had poorer credit had to pay more or a deposit of some sort for items. When I went to get a cell phone several years ago, I was congratulated by the sales person who said that I was only the second person that he had ever worked with who didn’t have to pay a downpayment of any sort to get a phone.
Lax policies and easy credit allowed a lot of people to purchase things they shouldn’t have, but is this enough? Private Mortgage Insurance is for anyone who doesn’t have twenty percent down which was all but unavoidable as prices skyrocketed, unless you had a property to trade. Not many have saved $50 or $60 thousand and have still have a poor credit score. Paying more or buying less house would be a better solution. Housing prices have decreased so people can afford to buy more house if they are first time buyers.
The catch to the FHA’s announcement is that only those with credit scores lower than 580 would be have to pay a higher downpayment – 10%. The average credit score is in the upper 600s so that point is almost moot. Though by increasing the down payment requirement for more people, even those with better credit and halve the amount of cash that a seller could give the buyer at the closing (potentially decreasing the house’s selling price) more people might be able to afford a reasonably priced home.
Home ownership is still a tenuous situation. When people have had to pay more into a home and have more stake in it, they are more likely to stay, but if you lose only 3 or 4% of a homes value and walk away later because you can’t pay and don’t care about your credit score then that is an issue. For those paying 10 or 20% into a home with more equity, they would be more likely to stay in a home.
The stakes are different now that there is a recession, but even before that, when prices had increased, there were still may financial products offered that allowed people to effectively get money out of a home that they had never lived in. A higher downpayment would not solve all problems but may steer the market in the right direction.
