Low Down Payments for FHA Loans Have Been Around for Awhile

When Gregg Easterbrook writes about something I know about, he almost always gets his facts wrong.

In his football column (which I like), he writes:

A generation ago — a decade ago! — home buyers were expected to have a 20 percent down payment; that made them unlikely to try to buy something they could not afford, and banks wouldn’t be exposed if something went wrong, since they were lending only 80 percent of the value of the property. Now requiring 3.5 percent down is viewed as “toughening” standards. Isn’t this an invitation for yet another cycle of mortgage problems?

Low down payments for FHA loans have been around for awhile. When President Eisenhower signed the 1957 housing bill, Time Magazine reported:

The Federal Housing Administration, aiming to attract money for homebuilding, increased maximum interest rates on FHA-backed mortgages from 5% to 5¼%. And to woo more buyers from middle—and even low —income groups, it slashed down-payment requirements from 5% on the first $9,000 to 3% on the first $10,000 of a mortgage.

Yes, one could buy a house for $10K in 1957. A brand new 3-bedroom in Mansfield Ohio cost $15k at the time, so used homes would have cost less.

Buyers have also been able to use private mortgage insurance to buy houses with five percent down-payments for many years (at least since the 1980s–if any one has history on PMI down-payments before that, I would love to hear about it). VA loans have always had very low down payment requirements.

Do I worry about FHA? Sure. But let’s not pretend that we lived in some virtuous world before this decade in which everyone put 20 percent down on their house. It was just not true.

About Richard K. Green 102 Articles

Affiliation: University of Southern California

Richard K. Green, Ph.D., is the Director of the USC Lusk Center for Real Estate. He holds the Lusk Chair in Real Estate and is Professor in the School of Policy, Planning, and Development and the Marshall School of Business at the University of Southern California.

Prior to joining the USC faculty, Dr. Green spent four years as the Oliver T. Carr, Jr., Chair of Real Estate Finance at The George Washington University School of Business. He was Director of the Center for Washington Area Studies and the Center for Real Estate and Urban Studies at that institution. Dr. Green also taught real estate finance and economics courses for 12 years at the University of Wisconsin-Madison, where he was Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics. He also has been principal economist and director of financial strategy and policy analysis at Freddie Mac.

His research addresses housing markets, housing policy, tax policy, transportation, mortgage finance and urban growth. He is a member of two academic journal editorial boards, and a reviewer for several others.

His work is published in a number of journals including the American Economic Review, Journal of Economic Perspectives, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Land Economics, Regional Science and Urban Economics, Real Estate Economics, Housing Policy Debate, Journal of Housing Economics, and Urban Studies.

His book with Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy, is used at universities throughout the country. His work has been cited or he has been quoted in the New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, Newsweek and the Economist, as well as other outlets.

Dr. Green earned his Ph.D. and M.S. in economics from the University of Wisconsin-Madison. He earned his A.B. in economics from Harvard University.

Visit: Real Estate and Urban Economics Blog

1 Comment on Low Down Payments for FHA Loans Have Been Around for Awhile

  1. 15K for a house? That really shows how much value the dollar lost. But then again you can get a house in Michigan for about 100 dollars.

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