FHA to Cut Mortgage Insurance Premiums

Filed under: FHA Loans

premium cutThere is some very positive news for lower-income buyers as President Barack Obama has made plans to cut mortgage-insurance premiums which are charged by a government agency.

According to Julian Castro, secretary of the Department of Housing and Urban Development, the annual fees the Federal Housing Administration (FHA) charges to guarantee mortgages will be cut by 0.5 percentage point of the loan balance.

Mortgage insurance is in place because it helps cover losses when home owners default and foreclosures fail to recoup costs. This coverage is usually required when a borrower has a down payment that is less that 20% of a home’s price.

And, from this new mortgage-insurance premium structure, the FHA estimates that two million borrowers will now be able to save an average of $900 annually over the next three years if the borrower purchases or refinances a home.

Castro, in a conference call with reporters covering the news said, “We believe this is striking a very good balance between being fiscally responsible and also enhancing home ownership opportunities.”

According to a recent article by Clea Benson and Jonathan Allen, the FHA, since 2011, has been increasing premiums to offset losses that were caused by homeowners defaulting on their mortgages that the FHA backed.

In addition, housing industry participants said that these increases in annual fees are, in fact, making it extremely difficult for buyers with modest incomes to purchase a home.

Julia Gordon, director of housing finance and policy at the Center for American Progress agrees with the impact the increases have had, saying, “Lots of people have been locked out of the market, particularly lower-wealth borrowers and borrowers of color.”

The cut to mortgage-insurance premiums will allow 250,000 first-time home buyers to now enter the market, according to FHA estimates.

Also, according to Benson and Allen’s article, Democrats and housing groups admit that reducing FHA fees will help the agency’s bottom line because it will actually boost the volume of lending, which declined when home buyers had to pay more to obtain a loan.

FHA financing can be utilized by buyers at all income levels, even if you have previously owned a home.  There are no income restrictions (high or low) or first-time home buying restriction.

If you are in the market to buy or sell your home, or if you have any questions about the mortgage industry, please give me a call and we can discuss whatever is on your mind.

Source: http://www.bloomberg.com/news/2015-01-07/obama-said-to-announce-cut-in-fha-mortgage-insurance-premiums.html



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