The Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has stated that some financial relief might soon be coming to an estimated 850,000 qualified borrowers with FHA mortgages over the coming year.
Vice President Kamala Harris and HUD Secretary Marcia Fudge announced a 30-basis point reduction to the annual mortgage insurance premiums charged to home buyers who obtain an FHA-insured mortgage. The premium reduction from 0.85% to 0.55% could mean an estimated savings of $678 million in aggregate by the end of 2023, according to HUD.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth building and homeownership,” Fudge says. “Today, we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgages, we continue our work to address longstanding disparities in homeownership.”
The 30-bp reduction will apply to almost all Single Family Title II forward mortgages insured by the FHA, and the reduction applies to all eligible property types, including single-family homes, condos, and manufactured homes. According to HUD, the average FHA borrower purchasing a single-family home with a $265,000 mortgage will save approximately $800 in 2023 as a result of the reduction. For a borrower with a mortgage of $467,700—the national median home price for December 2022—the reduction will save more than $1,400 in the first year of their mortgage.
HUD says in addition to providing overall savings to borrowers, the premium reduction will allow more people to qualify for a mortgage. The Mortgage Bankers Association (MBA) and NAHB commended the premium reduction, saying the move would help make home loans more affordable while easing credit conditions in the mortgage market that are negatively impacting affordability.
“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” says MBA president and CEO Bob Broeksmit. “This will especially help minority home buyers and low- and moderate-income households who are predominantly served by FHA loans.”
HUD says the action supports the Biden administration’s goal of making homeownership more accessible and affordable for the nation’s working families, particularly households of color. The department believes the action will help address historic disparities in homeownership, where buyers of color have been underrepresented. Broeksmit says ensuring a robust FHA program “that protects taxpayers and offers affordable homeownership opportunities for families in underserved communities is important.”
The reduction follows other recent steps taken to help improve homeownership access. HUD recently changed FHA’s underwriting policies to allow lenders to use positive rental history in evaluating applicants’ creditworthiness for an FHA-insured mortgage to help prospective first-time home buyers qualify. HUD also changed the way in which student loan debt is evaluated in FHA mortgage underwriting, enabling more borrowers making payments on student loans to qualify for an FHA-insured mortgage.
“At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly first-time home buyers and families of color who rely heavily on affordable FHA-insured mortgages,” says assistant secretary for housing and federal housing commissioner Julia Gordon. “For many families, the savings will make the difference in their ability to purchase the home of their choice.”
