First time home-buyer? Are you planning to get an FHA mortgage? Or are you even a current homeowner looking to refinance your FHA mortgage? There might be some good news!
Obama administration has announced reduction in the FHA annual mortgage insurance premium rate by 0.5 percentage points, to 0.85 percent by end of January. The administration estimates that the decrease will trim a borrower’s annual mortgage payment by $ 900 and enable 250,000 people to buy their first homes during the next three years. You could be one of them!
Even with the reduction, the new 0.85 percent premium is higher than historic norms. The rate was initially increased in 2011 to raise FHA capital reserves which took a hit during the housing crisis. The individual $900 annual savings estimated by the administration, which translates to $75 a month, may be the difference between buying and renting for some people.
Democrats also believe that the move will boost the volume of lending and thus, help the FHA’s bottom-line. Lending had declined when homeowners had to pay more to obtain the loans. A December study by the Mortgage Bankers Association said the premium increases had reduced the value of the insurance fund by $ 4.4 billion as higher costs drove away creditworthy borrowers.
Republicans, on the other hand, have said premium cuts should be off the table because the agency’s insurance fund remains below legally required levels. Mark Calabria, director of financial regulation studies at the Cato Institute, which supports free markets said “FHA has a portfolio of poor quality loans. This will end up costing the taxpayer considerably.”
In addition to its annual premiums, the FHA also charges borrowers an upfront fee, which is currently set at 1.75 percent of the loan balance and is not slated to change.
Do You have an opinon on the move that you would like to share?