Julian Castro, secretary of the U.S. Department of Housing and Urban Development, said that “After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families.” The new premium schedule is expected to save the average home buyer $500 a year in insurance costs. HUD stated that the reduced premiums reflect the healthy state of HUD’s mutual mortgage insurance fund, which is the agency’s principle fund for insuring FHA mortgages.
“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible home buyers,” said Edward Golding, HUD principal deputy assistant secretary for housing. “This conservative reduction in our premium rates is an appropriate measure to support [home buyers] on their path to the American dream.”Under the new schedule, a home purchase with a base loan amount of up to $625,000, with an 85-percent loan-to-value ratio and a 30-year loan term, will require an annual mortgage insurance premium of 55 basis points, down from 80 basis points. A 15-year loan of that same amount and with a 90-percent LTV ratio will require an MIP of 25 basis points, down from 45. Access the full schedule.
NAR is calling on FHA to take even more steps to help home buyers, including eliminating FHA’s “life of loan” mortgage insurance requirement, which forces borrowers to maintain mortgage insurance regardless of their equity position. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property. “Our work continues, but we’re encouraged by today’s announcement,” Brown said.