Homeowners will save an average of $800 per year following the Biden Administration’s announcement Wednesday that it will reduce by 30 basis points the annual mortgage insurance premiums charged on loans via the Federal Housing Administration.
In a news release, the White House said Vice President Kamala Harris and Department of Housing and Urban Development (HUD) Secretary Marcia Fudge will announce the change during a news conference in Bowie, Md.
HUD, through the FHA, will reduce its annual mortgage insurance premium from 0.85% to 0.55% for most new borrowers. The mortgage insurance premium is the monthly fee homeowners with FHA-insured mortgages pay to insure their mortgages. The fee is paid on top of the monthly principal and interest payments.
The premium reduction will take effect on March 20, and will be reflected in the President’s Fiscal Year 2024 Budget, the White House said.
The reductions will save homebuyers and homeowners with new FHA-insured mortgages an average of $800 per year, the White House said, adding that it will lower housing costs for an estimated 850,000 homebuyers and homeowners in 2023.
The announcement is an important step in making homeownership more attainable, the administration added.
“Homeownership is currently the principal source of wealth creation for most American households,” the White House said in a statement. “But due to a nationwide shortfall in the supply of affordable homes and shifting demand for housing during the pandemic, first-time homebuyers have struggled in recent years to achieve homeownership. First-generation homebuyers and first-time homebuyers of color — who are less likely to have sufficient resources for a sizeable down payment due to a longstanding gap in intergenerational wealth transfers — have been particularly affected.”
FHA-insured mortgages, which accounted for 7.5% of home sales in the third quarter of 2022, are targeted at homebuyers who otherwise may not be able to achieve homeownership.
Mortgage Bankers Association President and CEO Bob Broeksmit praised the announcement, calling it “a move we have strongly encouraged since 2021.”
“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,” Broeksmit said. “This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.”
FHA insures loans with a small down payment and more flexible underwriting, enabling families to begin building wealth through homeownership earlier than they otherwise might and providing an open door to credit-worthy borrowers. More than 80% of FHA borrowers are first-time homebuyers, and over 25% are homebuyers of color.
The average home purchased with FHA-insured mortgages cost around half the price of the overall national median home and have an average mortgage amount of less than $270,000.
“Ensuring a robust FHA program that protects taxpayers and offers affordable homeownership opportunities for families in underserved communities is important,” Broeksmit said, “and we will work with the Biden administration and Congress on policies that have the greatest impact on borrower affordability and sustainability.”
