President Obama announced in January that he would direct the Federal Housing Administration (FHA) to lower the annual mortgage insurance premiums by a half percent for home buyers seeking FHA loans. This is great news for FHA borrowers. FHA officials say this action could save more than two million FHA homeowners an average of $900 annually and create 250,000 new first time home buyers over the next three years. But what does it really mean?
FHA loans are a great option for home buyers who either have little or no down payment monies or have credit scores that are less than perfect – say under 680. These two features are what make FHA loans attractive to many first-time and move up buyers. There aren’t any buyer restrictions for FHA loans but there are sales price limits that vary by county in each state.
While FHA loans can be great for those with less-than-perfect credit and limited downpayment funds, they do come with a price tag: mortgage insurance. This insurance is mandatory with all FHA loans and is paid monthly as part of your total mortgage payment to protect the lender against default should you stop paying their mortgage. That's right, you pay the insurance premium but it protects the lender. And since it is an annual premium, you pay this every year you own the home and have the FHA mortgage.
So how does the President’s directive help you? It means that new FHA borrowers will enjoy lower mortgage payments. The half percent decrease became effective January 26 for new mortgages, reducing the annual premium to 0.85% (versus the old 1.35%) on a 30-year fixed term. In dollar terms, this saves a home buyer $500 a year (or $42 per month) on a $100,000 mortgage, $1,000 a year on a $200,000 mortgage, and so on.
This also helps the housing market since lower monthly premiums make mortgages more affordable, therefore helping more new home buyers qualify for a mortgage. Add in some down payment help and your mortgage could be even more affordable – FHA loans are eligible for our NC Home Advantage Mortgage™ that offers up to 5% down payment assistance. It’s a great time to buy a house!
