Tags

, ,

Earlier this month, the President announced that the FHA will reduce its annual premium by 0.5%, or from 1.35% to 0.85%, for a borrower using a 30-year fixed rate mortgage with a 3.5% down payment. In historical context, that reduces the annual mortgage insurance charge to its lowest level since early October of 2010. Even with the rate reduction, the fee charged by the FHA for its mortgage insurance (6% of originated balance) more than covers the expected losses (5%). The change takes effect January 26.

For a borrower with a $200,000 mortgage, this changes amount to a reduction in the monthly payment of $83. By year five, this borrower has saved nearly $4,800, but over 30 years the borrower would save roughly $18,000.

The lower pricing is expected to draw thousands of credit-worthy borrowers back into the market. National Association of Realtors® research estimates that the fee reduction will bring an additional 1.6 million to 2.1 million renters into the home buying market, along with many trade-up buyers, resulting in 90,000 to 140,000 additional annual home purchases in the next year or two.

FHA Lowers Pricing to Reflect Less Risk.