Fees associated with Federal Housing Administration-insured mortgages are set to see a major price cut.
The FHA is set to reduce the annual mortgage insurance premium – the monthly fee to insure the mortgage – from 0.85% to 0.55% for most new borrowers seeking a mortgage insured by the agency.
The drop is expected to affect 850,000 borrowers this year and save homeowners $800 a year on average, according to the White House.
“FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said in a news release.
Who’s affected?
FHA-insured mortgages, which are meant for buyers who may not otherwise be able to afford a home, accounted for 7.5% of home sales in the third quarter of last year. More than 80% of FHA borrowers are first-time buyers, and more than a quarter are people of color, according to a fact sheet from the White House.
The average home purchased with FHA-insured mortgages costs about half the price of the national median home price, and their average mortgage is less than $270,000, according to the White House.
Why do borrowers pay mortgage insurance?
The revenue FHA receives from the mortgage insurance premium offsets the mortgage insurance claims it pays to lenders, allowing the program to operate without government subsidy, according to the Department of Housing and Urban Development (HUD).
“FHA mortgage insurance facilitates broader availability of mortgage financing for low-and moderate-income households by reimbursing lenders for losses when a loan defaults,” according to a news release Wednesday from HUD.
What is the current state of the housing market in the US?
The announcement comes as home sales are starting to bottom out, with existing-home sales down for the 12th straight month in January. While still low, housing inventory has started to climb, potentially allowing more buyers to call the shots this year.
