The Biden administration has announced a reduction in the annual mortgage insurance premium charged to new borrowers taking out loans insured by the Federal Housing Administration (FHA). The premium rate will decrease from 0.85% to 0.55%, lowering monthly mortgage payments, with the goal of making home financing more accessible to low- and middle-income first-time buyers. The Biden administration announced that the move is expected to save 2023’s homebuyers an average of $800 in home financing costs, however it will certainly be much more than that in higher cost markets such as California.
The majority of FHA borrowers are first-time homebuyers, and over 25% are persons of color. By lowering the premium, the administration hopes that FHA-insured loans, which allow for down payments as low as 3.5%, will become a more affordable option for many people. This decision is supported by the National Association of Realtors, as it will expand homeownership opportunities and provide relief from rising mortgage rates, inflation, and home prices.
This is in addition to the fee reductions announced last month for moderate income first time homebuyers, that we have already implemented. Which is the better option, a conventional loan with reduced fees, or an FHA loan? Schedule a free consultation right away, and we will run numbers together that are specific to you.
The FHA’s Mutual Mortgage Insurance Fund reported a capital ratio of 11.11% in November 2022, which is far above the statutory minimum of 2.0%. This surplus allowed the administration to make the premium cut possible. The total cost of the program is projected to be about $678 million in the first year of the new pricing.
In conclusion, the FHA’s reduction in the annual mortgage insurance premium is a positive step towards making home financing more affordable for first-time homebuyers. While it may not have a significant impact on the housing market as a whole, it will help many families achieve their dream of homeownership. It is encouraging to see the government take action to address the affordability crisis facing many Americans today.