President Obama to announce drop in FHA Mortgage Insurance Premiums

President Obama is expected to announce a reduction in the mortgage insurance premiums for new FHA mortgage loans tomorrow.

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From Bloomberg News:

As part of an effort to expand homeownership among entry-level buyers, President Barack Obamawill announce a cut in Federal Housing Administration mortgage-insurance premiums during a speech in Phoenix tomorrow, according to three people with direct knowledge of his plans.

The annual fees the agency charges to guarantee mortgages will be cut by 0.5 percentage points, said two of the people, who asked not to be identified because the White House hasn’t yet made the announcement.

This reduction will bring the annual mortgage insurance premium down from 1.35% to 0.85% on a minimum down FHA loan. The annual FHA mortgage insurance premium is part of the borrower’s monthly mortgage payment. On a $400,000 loan amount, a borrower currently pays a whopping $450 a month in just mortgage insurance premiums (400,000 x 1.35% = 5,000, divided by 12 months). With the proposed mortgage drop, the monthly premium would be reduced to $283 (400,000 x 0.85% = 3,400, divided by 12 months), a savings of $167 per month.

This is great news for those who need FHA mortgages as the mortgage insurance premiums have become increasingly expensive over the last few years. A reduction in FHA mortgage insurance premiums will help borrowers who need an FHA loan qualify for a mortgage. This is especially helpful for borrowers who have had a short sale or foreclosure in recent years as FHA has more forgiving guidelines than conventional, allowing one to buy a home again after 3 years since the distressed sale.

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3 Comments

Filed under Loan Programs, Regulations

3 responses to “President Obama to announce drop in FHA Mortgage Insurance Premiums

  1. Playing devil’s advocate here – but if you need mortgage insurance, why are you buying a $400,000 home? Perhaps you should be looking at a home that is less expensive, instead of borrowing that much excess . . .

    • FHA is for loans up to $417,000 but it can be as low as $100,000 or even below that. Basically FHA has been used as a good first time home buyer program but the mortgage insurance is currently too high. The reduction should help the first time home buyer market a little.

  2. I agree that the mortgage insurance is too high, yes. Nice that it’s being addressed. Thanks for the info!

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