Big news for FHA loans – still some work to do to make them more user friendly, but this is a big step.
Mortgage insurance premiums on FHA-backed loans will be lower by 25 basis points on loans endorsed starting January 27, the federal government announced today.
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Julian Castro, secretary of the U.S. Department of Housing and Urban Development, announced today.
NAR President Bill Brown praised the move. “Dropping mortgage insurance premiums will mean a lot more responsible borrowers are eligible to purchase a home through FHA,” he said. “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.
”The new premium schedule, which takes effect for residential mortgage loans that have an insurance endorsement date on or after January 27, is expected to save the average home buyer $500 a year in insurance costs.
In its announcement, HUD said the reduced premiums reflect the healthy state of HUD’s mutual mortgage insurance fund, which is the agency’s principle fund for insuring FHA mortgages. “We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” said Edward Golding, HUD principal deputy assistant secretary for housing.
“This conservative reduction in our premium rates is an appropriate measure to support [home buyers] on their path to the American dream.”
Under the new schedule, a home purchase with a base loan amount of up to $625,000*, with an 85-percent loan-to-value ratio and a 30-year loan term, will require an annual mortgage insurance premium of 55 basis points, down from 80 basis points. A 15-year loan of that same amount and with a 90-percent LTV ratio will require an MIP of 25 basis points, down from 45. Access the full schedule.
*Loan limits for Gallatin County, Montana are
NAR is calling on FHA to take even more steps to help home buyers, including eliminating FHA’s “life of loan” mortgage insurance requirement, which forces borrowers to maintain mortgage insurance regardless of their equity position. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property. “Our work continues, but we’re encouraged by today’s announcement,” Brown said.