If you’ve recently been on the market to purchase a home or secure a mortgage, you are probably very familiar with FHA Mortgage Insurance rates. It had recently been in the works that the FHA was going to be reducing FHA Mortgage Insurance rates in the near future, but the FHA has since backtracked. Here’s what you need to know, and how it will affect you as a homebuyer:
The FHA, a sector of the Department of Housing and Urban Development, is a government agency that insures loans on homes and protects lenders in the case of default by collecting fees owed to reimburse lenders when necessary. The FHA usually insures first-time home buyers that may not have the best credit. In the past, the avg. credit score was 679. There have also always been limits on the price of a loan the FHA will back.
In late January, the Trump administration stopped a rate cut that was proposed by Obama just a week before he left office. The Obama administration originally proposed the cut because the FHA could withstand the cut to premiums that would in turn save homebuyers extra money, which they argued would be the best thing to do since the FHA has improved vastly since its bailout in 2013. If implemented, the premium rates would drop a quarter of a percentage point, which would restore rates back to what they were before the housing crash. The Trump administration suspended the cut with the concern that if the FHA was unable to cover the losses from reduced premiums, taxpayers could end up paying.
So what does this mean? While nothing has officially changed, it has been a HUGE headache for the industry. Approximately 40,000 people are estimated to be priced out of home ownership, while another 800,000 will have to pay more than anticipated. When it comes down to it, if you had originally planned on using the FHA-backed loan with lower insurance rates, all this news really means is that you will just still have to pay the same rate required since January 2015- unless of course, you have to adjust your home-buying plans altogether. While the cut hasn’t been totally eliminated, nobody is certain if this cut will get back on the table for approval anytime soon.
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