The Federal Housing Association (FHA), a government agency that allows homebuyers to purchase a home with as little down as 3.5% of the purchase price, is reducing its annual mortgage insurance premiums for U.S. homeowners. Effective January 26, 2015, premiums are cut from 1.35% of a loan value to 0.85% - a 0.5% reduction! This change provides relief for existing homeowners, improves affordability for future homebuyers, and will help stabilize the FHA market.
What This Means for Future Homebuyers
Homeownership just became more affordable for many people hesitant to get locked into a mortgage payment. FHA's new reduced premiums provide an incentive to potential homebuyers previously shut out of the market to strengthen their financial investments and plan their future. The lower premiums are expected to draw up to 250,000 first-time homebuyers into the market over the next three years.
What This Means for Current FHA Homeowners
Borrowers who have not yet closed on their loans may be in luck. The FHA is allowing lenders to cancel existing case numbers and assign new ones to give borrowers a chance to take advantage of reduced premium rates. Contact your mortgage lender for more information.
These new reduced premium rates only apply to mortgages assigned on or after January 26, 2015. Borrowers with loans that have closed are not eligible.
How Much Can I Expect to Save?
The annual Mortgage Insurance charge is now at its lowest level since October 2015, and the FHA's 0.5% premium cut is expected to save over two million FHA homeowners an average of $900 annually.
A first-time buyer purchasing a home for $350,000 can now expect to pay a Mortgage Insurance Premium of $240/month ($2,885/year) with the new 0.85% rate rather than $381/month ($4,572/year) under the old rate of 1.35%. That's an annual savings of $1,687!
FHA’s new reduced mortgage insurance premiums only apply to FHA-insured mortgages with loan terms exceeding 15 years. Premium rates for mortgages with terms of 15 years or less remain the same.