FHA Slashes 2017 Mortgage Insurance Premiums
FHA Lowers Costs
This morning, in one of the final moves before handing over the reigns to President Trump, the Obama administration reduced the monthly mortgage insurance rate by a quarter percent, from .85% to .60%.
On a purchase of $235,000 (the current median price of a US home), a borrower using FHA financing will save nearly $50 on their monthly payments.
The last reduction in the monthly mortgage insurance rate occurred in January of 2015 when the monthly rate was cut from 1.35% to .85%.
That change was widely seen as appropriate and necessary as the FHA mortgage insurance fund was approaching federally mandated levels for the first time since the housing crash.
More importantly, with the rate at 1.35%, FHA financing was not competitive with private mortgage insurance which was significantly lower at all credit levels, especially for those with good credit.
Those borrowers are essential for the FHA as they offset the risk of lower credit borrowers in the insurance pool.
Here is the historical rate of monthly and upfront mortgage insurance since the housing crash of 2008:
|Date of Change||Monthly MI||Upfront MIP|
|Before January 2008||.50%||1.50%|
Can Trump Administration Reverse Changes?
While the move is certainly welcome by borrowers and those in the real estate and mortgage industries, it is not without its opponents.
Republicans in Congress feel the reduction puts the FHA insurance fund at risk going forward. President Elect Trump has nominated Ben Carson to take over the Department of Housing and Urban Development (HUD) which is responsible for administering the FHA program.
Should they disagree with the cut, it could be reversed in short order. Taking into consideration Ben Carson’s public comments about making home financing more accessible to low to moderate income families, it is unlikely that we will see a reversal on this.
So, if you’re looking to buy using FHA financing, we are certain of one thing. You currently have a window of opportunity to lock in the new mortgage insurance rates and cut your monthly payments.
Homebuyers Can Afford More
If you’re either considering, or in the process of buying a new home using FHA financing, you can now afford a little more home.
The monthly mortgage insurance premium is calculated in your debt to income ratios, and this reduction in the insurance premium will directly benefit you by reducing your mortgage payment.
When you couple the reduction in the mortgage insurance premium with the increased FHA loan limits for most Counties in the U.S., many first time buyers will see a significant difference in the available homes you can now afford to buy.
If you are already pre-approved, and have been having trouble finding your dream home in a competitive market, check back with your lender to see if you can expand your opportunity to see homes in a slightly higher price range.
FHA Streamline Refinance Opportunity
An FHA streamline refinance is one of the best programs available to homeowners today.
If you currently have an FHA loan, you have the ability to do a reduced cost, reduced paperwork refinance by meeting the minimum benefit of reducing your effective interest rate by .50%.
Since January 2015, this meant that you had to reduce your actual interest rate by .50%. Now that FHA mortgage insurance premiums have been reduced by .25%, you can now realize an “effective” rate reduction by through a reduction in mortgage insurance AND interest rate.
Real Life Example
I have a client with a high balance FHA loan in California. Their interest rate was at 4% from the purchase because we priced it to cover all of the closing costs with a lender credit.
We had to reduce the interest rate to 3.5% to achieve the .50% improvement in rate, to qualify for a streamline refinance.
By the time we were ready to look at a streamline refinance to lower that rate, the election hit. The interest rates shot up, and it was not possible to reduce the rate that far.
I am constantly reviewing the financing for my clients and looking for opportunities for them to save money, or meet financial goals that were previously just out of reach.
When FHA reduced mortgage insurance rates by .25%, I was able to reduce the interest the interest rate to 3.75%, and with the .25% reduction in mortgage insurance, my client now meets the .50% reduction threshold.
With minimal paperwork, and no appraisal, this homeowner is going to save close to $200 a month with no money out of pocket! This move by FHA will help a lot of folks in similar situations.
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