The Federal Housing Administration (FHA) announced a reduction of .25 percent in mortgage insurance premiums beginning January 27, saving new home-buyers an average of $500 annually.
The FHA’s purpose is to open the door to home-buying for potential borrowers that do not meet the traditional home mortgage requirements. Borrowers pay an insurance premium and higher interest rate to FHA in exchange for a 3.5 percent down payment.
During the Great Recession, the FHA increased its monthly premium by 45 basis points, and by April 2013, a total of 1.35 percent. The move was meant to strengthen the FHA’s Mutual Mortgage Insurance fund and ease concerns of post-recession, but according to NAR research, blocked between 1.45 and 1.65 million renters out of the market.
The decrease “comes at the right time for consumers who are facing higher credit costs as mortgage interest rates are increasing,” according to Julián Castro, the U.S. Housing and Urban Development (HUD) Secretary, which oversees the FHA.
The new rates are expected to present more opportunity for first-time and low-income borrowers that previously couldn’t afford the high cost of mortgage insurance, or couldn’t meet the debt-to-income ratio requirements. Lower premiums could mean a boost in prospective home-buyers, and easier mortgage approvals, despite the increase in interest rates and home prices.