In a striking move to widen the path for American homeownership, the Bush Administration announced plans that would eliminate the need for first-time home buyers to make a down payment for FHA-insured single-family mortgages.
The new proposal is part of the fiscal year 2005 budget package being requested by HUD, according to federal housing commissioner John C. Weicher, who unveiled the proposal during in a speech at the NAHB's annual convention last month. The Federal Housing Administration currently can insure loans involving down payments of as little as 3 percent.
Families who qualify for the "zero down payment mortgage" would be charged a slightly higher premium on the loan. For a $100,000 mortgage, the premium would amount to $50 a month more than a regular FHA borrower would pay. The higher premium is expected to cover the incremental costs of the program. HUD estimates 150,000 families would take advantage of the program in the first year alone.
"This initiative would not only address a major hurdle to homeownership and allow many renters to afford their own home, it would help these families build wealth and become true stakeholders in their communities," said commissioner Weicher. "In addition, it would spur the production of new housing in this country," he predicted.
Scott Syphax, president and CEO of Nehemiah Corp. of America, which pioneered down payment assistance (DAP) programs, hailed the new initiative, even as he recognized that it would reduce the need for assistance that his and similar organizations provide. But he added: "The work is only half done. The FHA loan ceiling is still too low" to help many families in markets where average home prices exceed the FHA's $251,000 loan limits. Nehemiah expects to remain active managing low-income housing developments and creating equity funds for mortgages.
The new FHA mortgage program, considered the most significant initiative by the FHA in more than a decade, complements the recently enacted American Dream Down Payment Act, which gives down payment assistance to 40,000 American families annually, according to HUD.