This week, U.S. Housing and Urban Development Secretary Julian Castro announced that the Federal Housing Administration (FHA) will reduce the annual premiums most borrowers pay from 0.85 to 0.60 percent. This cut will be effective for most new mortgages with a closing/disbursement date on or after January 27, 2017, and will result in an average of $500 in savings for FHA borrowers this year.
This announcement was well received by William E. Brown, president of the National Association of Realtors, who expects that as a result of the reduced premiums, many more buyers will be eligible to purchase a home through FHA funding. As he explains, a cut in the cost of mortgage insurance allows more borrowers to meet the debt-to-income ratio required to purchase a home, which should help create more home sales.
The reduction in the mortgage insurance premium comes as mortgage rates are increasing, making it even more advantageous for buyers facing rising financing costs. It also reflects the ongoing improvement in the economic health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which gained $44 billion in value since 2012.
According to Castro, “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”
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