Good news for home buyers. The Federal Housing Administration is lowering the mortgage insurance premiums one-quarter of a point. If you are closing on or after January 27, 2017 this could save you and average of $500 a year.
What is mortgage insurance? It exists to provide home ownership opportunities to borrowers who have good credit but are not able to buy under requirements of conventional lenders. They can put less money down meaning they do not need to save a much money before they can purchase a home. The money is used to protect against costs associated when people default on their loans.
Why Now? The FHA requires a 2% reserve. The fund is now at 2.32% due to four straight years of growth in the housing market. The FHA decided it was time to pass some modest savings along to working families. It still allows FHA to protect the insurance fund while helping families who have good credit that previously did not qualify get the opportunity to buy a home.
U.S. Department of Housing and Urban Development Secretary Julian Castor says, "This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of home ownership for credit-qualified borrowers."
How does lowering the mortgage insurance premium help the buyer? When the cost of the insurance premium is reduced, more borrowers will meet the debt-to-income ratio that is required to purchase a home. Basically, lowering the monthly payment, thus lowering the debt-to-income ratio. If a buyer is close to that debt-to-income ratio limit, this can make all the difference.
This ultimately will help families live out he American Dream of owning a own home.
How will this affect the FHA reserve fund? This is still good for FHA. More borrowers who finance through FHA will put more money in the Fund to protect taxpayers.