Is the Federal Underwriting Another Housing Meltdown?

As hard as it may be to believe, the United States Government may be underwriting yet another housing crisis by providing home buyers with low or no down payment mortgages. That's right. Eligible home buyers today can buy a home with little or no money of their own to put into the property.

Just look what is available. From the Veterans' Administration: they are guaranteeing no down payment mortgages for qualified buyers. Private lenders originate these loans, then the VA guarantees them. There is no mortgage insurance. There is a small lending fee that ranges from 2.15% to 3.3% depending on the veteran's service. The standard loan limit for qualified veteran is $417,000 but in certain high value areas VA loans are available for as much a $1 million. A minimum credit score of 620 is required.

The VA requires debt to income ratios of 41% for both the gross income available to pay housing costs and the percentage of income that goes toward paying all recurring debt including housing. By contrast, a conventional mortgage requires 29% for gross income available to pay housing costs and 41% available for all recurring debt including housing.

The nation's largest credit union in assets and membership is the Navy Federal Credit Union. They offer 100% financing up to $650,000 to qualified members buying a primary residence. There is a funding fee of l.75%. Membership is restricted to military members, some civilian employees of the military and the U.S. Department of Defense and their families.

The Department of Agriculture offers a Rural Development Mortgage Guarantee program. But these loans are not confined to farmland. There are limits on household income and the program is intended for first-time buyers although there are exceptions. The mortgages are issued by regular banks, and there is no mortgage insurance. The Agriculture Department does require a 2% guarantee fee which can be rolled into the loan amount.

There's more! The FHA (Federal Housing Authority) offers an option requiring only 3.5% down. Most people are eligible for this so long as they have a minimum credit score of 580 and a debt to income ratio of approximately 31 percent (percentage of gross income available to pay housing costs) to 43 percent (percentage of income that goes toward paying all recurring debt including housing). And they are requiring documentation to prove you have a stable source of income. Buyers with credit scores of less than 580 will be required to make a cash investment of at least 10%. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

However, the down money can come in the form of a gift from a relative. Plus the seller can contribute as much as 6% of the purchase price towards closing costs, but this amount can not exceed the actual closing costs dollar amount. This is soon to be changed to 3% maximum. Even so, it is very conceivable that you could buy a house with no money of your own.

FHA loans require an upfront mortgage insurance premium of 2.25% of the mortgage amount plus an annual premium of.55% of the mortgage amount. There are loan limits, often below $300,000 in most areas. However, the limits go as high as $729,000 in some high value areas.

It is hardly surprising that almost 50% of all home buyers today get FHA-insured loans, up from 3% during the housing boom.

Please remember that the mortgage loan requirements for these various programs change often as does the minimum interest rate, so please check with your Realtor® or mortgage specialist before you make an offer on a property to make sure the prevailing rates and conditions make the property affordable for you.

Whitney Smith is a direct response marketing consultant and copywriter as well as a licensed real estate agent and investor. You can learn more about her real estate services at http://www.downsizingqueen.com or her marketing services at http://www.whitneysmith.net