For many years the FHA has made buying a home a little more affordable but one of the drawbacks has been the requirement for mortgage insurance. At the present time, the FHA requires mortgage insurance that typically has premiums that run about 1.85 percent of the value of the loan. In an effort to make owning a home more affordable, the Federal Housing Administration will soon be lowering the premiums to 0.85 percent.
This will be a significant change for a first-time home buyer. For new buyers, this means a savings of $900 a year on their mortgage payments. According to the White House, “To many creditworthy families who can afford and want to purchase a home are shut out of homeownership opportunities due to today’s tight lending market”.
The White House estimates that lower premiums will enable up to 250,000 new buyers to purchase a home.
Mortgage insurance premiums have been higher since the financial meltdown a few years ago. At that time, the FHA raised mortgage insurance premiums to shore up it’s finances. But more recently, home values are on the rise, the job picture is looking better and foreclosures have fallen to their lowest level since 2006.
The White House has also stated that even after lowering premiums, reserves in the fund are projected to grow by $7 billion to $10 billion annually.
For years FHA loans have helped many lower income, higher risk families realize the dream of home ownership. For many, FHA backed loans with such small down payment requirements and easier credit score have been the only thing available. With the lowering of mortgage insurance premiums, it will now be possible for even more to qualify to buy a new home. This new development should further improve the economic conditions leading to a better future in general.