Source: CNN Business —
The Biden administration announced Wednesday a change that will save an estimated 850,000 home buyers — primarily low- and middle-income and first-time buyers — an average of $800 on home financing costs this year.
The move affects mortgage insurance premiums paid by new borrowers who take out loans insured by the Federal Housing Administration. It will reduce the annual premium from 0.85% to 0.55%.
It’s part of an ongoing effort to address housing affordability challenges in the United States. This change, which takes effect on March 20, is expected to expand access to home ownership, said Marcia L. Fudge, Secretary of Housing and Urban Development.
Home financing costs have skyrocketed over the past year, with mortgage rates doubling from a year ago at the same time that home prices have remained strong in many housing markets. This has priced out many would-be home buyers who cannot qualify for a loan.
For homebuyers who have good credit and can make a down payment above 10% of the home’s price, FHA loans tend to be more expensive than conventional loans.
But for homebuyers struggling to enter the housing market, there are some loans like FHA that come with required mortgage insurance. The insurance lowers the risk for the lender to make a loan, so that borrowers can qualify for a loan that they might not otherwise be able to get.
The FHA does not directly issue loans, but rather regulates and insures loans from private lenders that come with advantages for would-be homebuyers with smaller down payments and lower credit scores. FHA loans allow for down payments as low as 3.5% and allow borrowers to have lower credit scores than most conventional loans.
In return, FHA requires borrowers to pay mortgage insurance to protect the lender. This mortgage insurance typically adds to a borrower’s costs. But for borrowers unable to enter the housing market another way, FHA loans can often be the cheapest option.
Outsized impact on new homebuyers and buyers of color
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