FHA has announced that it is considering raising the minimum down payment requirement for the Federally insured loan program from 3.5% to 5%. The reason for the possible increase is that the agency’s reserve funds, which are normally kept at around 2%, are extremely low right now, due to the money they have lost because of foreclosures. Along with the possible increase in down payment, they are also considering not allowing borrowers to finance any of their closing costs into the loan amount. On a purchase transaction, this is done by getting a slightly higher interest rate than the market rate, and using the rebate given for that rate, to pay the closing costs.

Bottom line is that it may soon take more cash out of pocket for homebuyers to purchase a home. If you are considering purchasing a home in the near or distant future, the window of opportunity to take advantage of a small down payment and 50 year low interest rates may be closing. Better to buy sooner than later.