The minimum down payment for an FHA loan has increased from 3% to 3.5% as of January 1, 2009. The new minimum down payment, however, is still considerably less than the 5% required by non FHA loan programs. The Housing and Economy Recovery Act of 2008 raised the minimum down payment for an FHA loan to emphasize the administration's philosophy that owning a home is a privilege and not a right.
Those looking to purchase a home with only 3.5% down and no other requirements need to look elsewhere. FHA mortgage guidelines apply common sense to make sure borrowers can afford to pay back the loan. Its goal of promoting home ownership to qualified borrowers, however, is still being fulfilled by insuring loans that accept a lower down payment and approving loans to those with less than perfect credit.
Borrowers must satisfy the following requirements to qualify for an FHA insured refinance:
- The applicant must have owned the property as a principal residence for at least 12 months prior to completing the loan application.
- The applicant must be current with mortgage payments and have had no late payments for at least one year.
- The property being refinanced must be a 1 or 2 unit dwelling.
- Non-occupant owners may not be added to the mortgage. Any co-borrower must be a resident.
- All other existing liens or mortgages must be subordinate to the new FHA mortgage.
- The mortgage being refinanced must already be FHA insured.
In order to qualify for cash out refinancing, most lenders limit the loan to value ratio to 80%; that is, the amount of the loan must be no more than 80% of the value of the home. Homeowners, however, can still qualify for an FHA insured cash out refinancing with a loan to value ratio of up to 95%. There is a new stipulation. Those seeking an FHA cash out refinance of greater than 85% are now required to get two appraisals before the loan can be approved. The second appraisal must be done by an FHA approved appraiser, paid for by the borrower and hired by the lender. If the second appraisal comes in more than 5% below the 1st, the maximum mortgage must be based on the lower appraised value.