In a recent surprise announcement, the Federal Housing Administration (FHA) will be reducing its annual mortgage insurance (MI) premium by 25 basis points—or 0.25 percent—for most new mortgage loans that have a closing or disbursement date on or after Jan. 27, 2017.
An FHA home loan is a government loan that is insured by the FHA. An FHA loan may provide an option for home buyers requiring a lower down payment option of 3.5 percent down. The program may also allow gift funds to be used for all or a portion of a down payment and/or closing costs, and seller contributions are allowed up to 6 percent of the loan amount.
In an effort to help make housing more affordable for more home buyers and homeowners, U.S. Housing and Urban Development Secretary Julian Castro said the new rates are projected to save new FHA-insured homeowners about $500 annually on a $200,000 loan.
According to economic research and data conducted by the Board of Governors of the Federal Reserve System1, homeownership becomes more appealing when the cost of credit falls. Here’s why:
- Potential buyers for whom FHA loans are the most economical option (i.e., first-time homebuyers, others with little cash on hand or those with lower credit scores) are therefore directly incentivized to buy when premiums drop.
- Monthly payments may determine whether a particular application gets approved for credit or denied. A lower MI premium will favorably affect qualifying debt-to-income ratios.
And higher loan amounts may result in a higher savings amount. For example, on a $300,000 sale price with 3.5 percent down, the current annual MI payment would be about $203 per month. Beginning on Jan. 27, the MI payment would be $145 per month. That is a savings of almost $700 in the first year!
Check out this article from CNBC to learn more, and be sure to contact your local mortgage consultant with any questions you have about your mortgage financing options.
- FEDS Notes, Changing FHA Mortgage Insurance Premiums and the Effects on Lending, https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/changing-fha-mortgage-insurance-premiums-and-the-effects-on-lending-20160929.html
An FHA home loan may not be the best product for all borrowers. Not all loan types are available to all borrowers. Not all borrowers will qualify. Borrowers will be subject to qualification and must satisfy all underwriting requirements and conditions. Some and/or all qualifying criteria may be set by independent third party program sponsors. Consult your mortgage consultant and carefully consider each of your home financing options so you can determine the home loan that is right for you.
All first mortgage products are provided by Prosperity Home Mortgage, LLC. (877) 275-1762. Prosperity Home Mortgage, LLC products may not be available in all areas. Not all borrowers will qualify. Licensed by the NJ Department of Banking and Insurance. Licensed by the Delaware State Bank Commissioner. Also licensed in District of Columbia, Georgia, Maryland, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia.
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