by RS Coolidge

Created on: January 08, 2009   Last Updated: February 12, 2009

The Subprime Mortgage crisis is inspiring banks and other lending institutions to tighten requirements for housing loans. As a result, people with big dreams of owning a home but little money set aside are looking to the Federal Housing Administration for help. If you are such a person, it is important to have information about the FHA Mortgage program and how the down payment requirement has changed for 2009.

The Federal Housing Administration was created in 1934 to make home purchases financially available for more American families. The FHA does not actually make home loans rather it insurers loans made by traditional lenders. If the borrower ends up defaulting on the loan, the lender is secure in the knowledge that the loan will be repaid from the FHA's Insurance fund. The program is designed essentially for buyers who are unable to qualify for traditional loans due to bad or no credit. Not only does it help secure loans, but for those who pay their bills consistently it provides an opportunity to build a better credit rating.

To secure an FHA mortgage, a person needs to have a down payment available for the house. Prior to 2009, the down payment required was 3% of the house's price. For 2009, that percentage will be raised to 3.5%. What does this change mean in practical terms? Well, consider the example of a family wishing to purchase a $200,000 home:

At the old rate of 3%, a $200,000 home would have required a $6,000 down payment to secure an FHA Mortage.

At the new rate of 3.5%, a $200,000 home will require a down payment of at least $7000.

The increase may make it harder for some to obtain an FHA mortgage. However, with an FHA mortgage comes the piece of mind in knowing that the mortgage will most likely be approved. What price can be put on that?

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