Julián Castro, Secretary of the U.S. Department of Housing and Urban Development, announced today that the Federal Housing Administration will cut the annual premium from 85 basis points to 60 basis points prior to Trump’s inauguration. A 25 basis point cut is equivalent to a .25% reduction in mortgage premiums, bringing them back to a pre-crisis level. This will be the second time the Obama administration reduced the premiums, and is most likely to remain untouched by Trump upon taking office. It would be counter-intuitive and a negative beginning for the Trump administration to take office and then be responsible for blocking this cut thereby making mortgages more expensive for voters.
Which FHA Premium is Affected?
FHA Loans require the Annual Premium, which is being reduced, as well as the Upfront Premium. The one-time Upfront Premium of 1.75% is due at closing and is typically rolled into the loan, will remain the same. The annual premium, also known as Life of loan insurance or PMI, will remain intact to maintain the stability of the FHA fund. Borrowers with less than 20% equity will still be required to pay mortgage insurance for the life of the loan, but the reduced rate is projected to save borrowers $500 a year on average. Read more about this change by clicking here.
What does this mean?
Today’s lower premium- effective for most new mortgages with a closing date of January 27, 2017 or after- of .60% will make FHA loans accessible to those who wouldn’t otherwise qualify today with the premiums being at .85%. The lower rate is believed to encourage first time home buyers to apply for loans. The rate of 85 points was reduced from 135 points in January of 2015, which enhanced prospective home buyers’ ability to apply for larger loans and increased purchase volume by 25%.