In a move designed to bring more first-time homebuyers into the housing market, the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent.
Mortgage bankers praised the decision. “It couldn’t come at a better time,” said David Stevens, CEO of the Mortgage Bankers Association. “February is the beginning of the spring market. I think it will have a definitive impact particularly in the first-time homebuyer market.” For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic’s chief economist, Sam Khater.
The FHA had been the only low down payment product available, with a minimum 3.5 percent down, but recently Fannie Mae and Freddie Mac announced a new 3 percent down payment product that would require private mortgage insurance. The product would compete directly with the FHA and could have offered some borrowers a cheaper option if they had a good credit score. But many applicants that would qualify under FHA’s credit and debt-to-income guidelines would not have been approved for the new Fannie and Freddie programs, so this move by FHA will add more purchasers into 2015.