Lower FHA Annual Premium
President Obama announced last week that there will be a drop to a lower FHA annual premium at the end of the month. The premium will be dropping from 1.35% to .85% a total decrease of 50 basis points. The reduction in the annual premium is for borrowers with lower credit scores. The estimate is over 250,000 homebuyers will be able to enter the housing market due to this decrease.
Making Homeownership More Affordable.
The lower FHA annual premium stands to make homeownership more affordable to many buyers who would have been denied previously. The annual premium is divided and paid monthly over the course of the year. The lower premium equates to a lower monthly payment and may help borrowers who were previously exceeding a 43% debt to income ratio. An explanation for how the annual premium is charged to FHA loan borrowers can be found here.
Criticism & Concerns
No wonder, many economic experts are hopeful for the impact of this change in the annual premium. There is criticism about this move. Most are mentioning how this change is not consistent. Opposed to the previously stated goals of transferring more of the risk in the mortgage sector over to private capital. The new lower FHA annual premium will be lower than the premiums of Fannie Mae, Freddie Mac, and other private insurers making FHA loans the most affordable loan option.
Many politicians are questioning whether or not this was a good idea for the housing industry and the health of the FDHUD. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, DC, stated, “This sounds like a move in the wrong direction. FHA has a portfolio of poor quality loans. This will end up costing the taxpayer considerably.”
Private Mortgage Insurance Industry
Now what does this mean for the Private Insurers? Many people are jumping to conclusions that a lower FHA annual premium will negatively impact the private insurers. The lower annual premium is only for borrowers with lower credit scores. So insurers aren’t feeling the hit of lower premiums on every loan. In fact, many homebuyers who do not qualify for a mortgage will now get approval ultimately. This will increase the number of borrowers utilizing the mortgage insurance. Any reduction in the annual premium will only affect 10-15% of their current loan volume. Ultimately, the private mortgage insurers will be servicing many more loans and stand to make a great profit.
The decrease in the FHA annual premium means homeownership affordability for the individual consumer. As well as, it will make the American dream of owning a home a reality for many families. It will also increase home sales throughout the nation.
No doubt, the new lower FHA premium may be your opportunity to take advantage of homeownership. Not only can Aceland Mortage help you get approved and but also get financing for your FHA loan. Give us a call or apply online, William Halick is ready to answer your questions and make your homeownership dreams come true.