For homebuyers looking to get a mortgage backed by the Federal Housing Administration, things are about to get easier – and less expensive.
The FHA announced today that they are cutting their annual mortgage insurance premium from .85 percent to .60 percent. National Association of Realtors® President William E. Brown said the move is an important step for helping low and moderate-income buyers get into a home.
“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers. Now, we have a real opportunity to get back on track.”
FHA mortgages are particularly important because they represent a low downpayment option for buyers, but NAR has said that the high costs of mortgage insurance – a requirement of FHA mortgages – have priced many of those buyers out of the market.
This is a question of simple math,” Brown said. “Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream.”
Brown noted, however, that additional work is required to give more families an opportunity to utilize the FHA mortgage option. While thanking the leadership at FHA and the Department of Housing and Urban Development, Brown added that eliminating FHA’s “life of loan” mortgage insurance requirement is another important step that needs to move forward. This policy requires borrowers to maintain mortgage insurance on an FHA-insured property regardless of their equity position, while borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property.
“HUD and FHA leaders are to be commended for recognizing the need we have before us,” Brown said. “Our work continues, but we’re encouraged by today’s announcement.”