Inflation may be making just about everything more expensive, but mortgage insurance premiums on FHA loans are going down.
FHA loans, often used by first-time homebuyers, typically only require a 7.5% down payment. In cases where the down payment is less than 20% of the home purchase price, the lender requires a mortgage insurance policy to protect it in the case of default.
The U.S. Department of Housing and Urban Development (HUD) this week announced a move that will result in lower premiums, which are part of the homeowner’s monthly payment. Currently, the premium is 0.85% of the loan amount. Under a new rule, it is being reduced to 0.55%.
A homeowner who takes out a $300,000 mortgage for an FHA loan currently pays $2550 per year in premiums, adding about $212 to the monthly payment. With the reduction, the premium will fall to $1,650 per year, reducing the monthly cost to $137.50.
Could save $800 a year
HUD Secretary Marcia Fudge says the change could mean an estimated savings of $678 million for American families by the end of 2023 alone. She said the reduction will benefit an estimated 850,000 borrowers over the coming year, saving these families an average of $800 a year.
“For this country to truly succeed, all Americans must have access to opportunity,” Fudge said in a speech at Bowie State University. “That means expanding access to wealth-building and home ownership. As we reduce housing costs for people with FHA mortgages, we continue our work to address longstanding disparities in homeownership.”
The premium reduction will take effect on March 20 for current and future FHA mortgages.
HUD also recently changed FHA’s underwriting policies to allow lenders to use positive rental history in evaluating applicants’ creditworthiness for an FHA-insured mortgage. Officials say that makes it easier for first-time homebuyers to qualify for an FHA loan.