Homebuyers could benefit from a recent move by the FHA to reduce the costs of mortgage insurance. Although rates on mortgage insurance had been increasing since 2011 to help the FHA compensate for losses from mortgage defaults, the agency is now proposing a decrease in premiums from 1.35 percent of the mortgage loan value to only 0.85 percent.
On average, first-time homebuyers can expect savings of about $900 a year on mortgage payments thanks to the new changes.
Not only can first-time homebuyers benefit, but current homeowners who opt to refinance using a loan from the FHA can also enjoy savings. According to estimates from the White House, these lower premiums could make it possible for an additional 250,000 Americans to own their own home.
Although changes have been made to mortgage insurance rates, the FHA has not made any moves to change the rate on the upfront fee it charges borrowers who use its mortgage loans to finance home ownership. The rate of the upfront fee will remain at 1.75 percent of the total amount of the mortgage loan into 2015.
Controversy around the changes
Democrat and Republican opinions tend to differ significantly regarding this new FHA change. While democrats and housing groups have argued that reductions in fees will allow the FHA to improve its bottom line by increasing the number of interested borrowers, Republicans called attention to the fact that the agency’s insurance fund is already too low to permit such premium cuts. The FHA’s insurance fund is below the amount that is required by law.
Law requires that the FHA have enough funds on hand to handle losses that are projected on its portfolio of $1.1 trillion. Last year, the FHA insurance fund was forced to rely on $1.7 billion in assistance from the Treasury Department to stay afloat. While the fund was able to post a positive balance in the fiscal year 2014, this was the first time that a positive balance was posted in two years.
Improvements expected in FHA funds
Despite the opposition, the White House has estimated that FHA funds should grow from $7 billion to $10 billion each year even with the lower premiums. FHA loans have been enormously helpful to many Americans pursuing home ownership who would otherwise have been unable to acquire a mortgage loan because of low income levels or credit history issues.
If you’re considering buying a home, contact Park Avenue Properties of Colorado Springs today to start the search for your next home and take advantage of these savings on FHA costs.