The FHA will cut premiums on the loans is guarantees from 1.35 percent of the loan value down a half percentage point to just 0.85 percent.
“This action will make homeownership more affordable for over two million Americans in the next three years,” said U.S. Department of Housing and Urban Development Secretary Julián Castro in a press release. “Since 2009, the Obama Administration has taken bold steps to reduce risks in the mortgage market and to protect consumers. These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory. By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures.”
After the mortgage meltdown that started roughly in 2007, the FHA was basically the only option for most low-income and first-time homebuyers. Yet with mounting foreclosures, the FHA’s reserves fell below safe levels and it had to receive government funds to survive. Part of its precautionary efforts were to raise premiums to protect its depleted mortgage insurance fund.
But those higher costs made it more difficult for the targeted buyers to qualify for home loans. The drop in premiums is projected to save the average FHA borrower $900 a year on their mortgages and it is expected to encourage an additional 250,000 consumers to purchase homes this year.
In addition to trying to make homeownership more affordable, the decrease in costs has been enabled by the improved financial health of the FHA’s mortgage insurance fund as well as overall improvement in the FHA’s fiscal situation.
The fee changes are expected to take effect by the end of the month.