Bush Administration Proposes "Zero Downpayment" Mortgage Plan

President Bush and Housing and Urban Development Secretary Mel Martinez announced more than $1 billion in grants to provide housing and supportive services to hundreds of thousands of homeless families and individuals across America. The announcement represents the largest amount of homeless assistance in history.

The Department of Housing and Urban Development (HUD) released a Fiscal Year 2005 proposal that would allow homeowners to buy a home without a downpayment.

This "zero down payment" mortgage would help remove the greatest barrier facing first-time homebuyers--the lack of funds for a downpayment on a mortgage.

The proposal would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.

Preliminary projections indicate that the new FHA mortgage product would generate about 150,000 homebuyers in the first year alone.

For those that choose to participate in the Zero Down Payment program, HUD would charge a modestly higher insurance premium, which would be phased down over several years, and would also require families to undergo pre-purchase housing counseling.

The monthly payment would likely be higher for borrowers taking part in the new program as opposed to a traditional FHA program. The downpayment costs would be put into the monthly mortgage payments. It is suggested that consumers who can afford a downpayment are better off going with the traditional FHA program.

The private mortgage insurance companies are not likely to be affected by the new proposal. Their consumers are traditionally lower risk, and HUD’s new plan helps those who are higher risk. The new HUD program would not interfere with work done by downpayment assistance programs run by groups such as Nehemiah Corporation of America.

For current FHA mortgage loan limits, visit www.hud.gov