FHA loan savings coming soon

The Federal Housing Administration (FHA) recently announced that it will reduce the mortgage insurance premium for all FHA loans by 0.25 percent, a move which will help put home ownership within reach for many. This reduction will result in savings for home buyers – a buyer who purchases a $200,000 home will see a $480 savings annually on the cost of their mortgage. A sales price of $350,000 will equal a $845 savings every year. The change takes effect for new mortgages with a closing date on or after January 27, 2017. 

What is an FHA loan? An FHA loan is a mortgage that is insured by the FHA. The FHA does not provide the loan to borrowers, but rather provides a safety net for lenders through the FHA Mutual Mortgage Insurance Fund, which protects lenders against potential future losses. 

How do FHA loans help buyers? FHA loans are great for first-time buyers who may find saving for a large down payment challenging. Down payments for FHA loans can be as low as 3.5%. FHA loans are also good for buyers with less-than-perfect credit. Qualifying credit score requirements for FHA loans are lower than they are for conventional loans, making mortgages and home ownership possible for many families who would struggle to quality for a conventional loan. 

What is an FHA mortgage insurance premium? Borrowers with an FHA loan pay an annual mortgage insurance premium (MIP), which is added to the monthly expense of the mortgage. These fees go into the FHA Mutual Mortgage Fund, which helps the FHA protect against lenders’ losses should borrowers run into trouble. 

Why is the mortgage insurance premium being lowered? Congress requires the FHA to keep enough reserves in the Mutual Mortgage Fund to cover projected losses for 30 years, which is equal to about a 2% threshold. Department of Housing and Urban Development Secretary Julian Castro wrote last week: “After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families. This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of home ownership for credit-qualified borrowers.” 

Check out the home buying process online or contact our team at sales@schkc.com to learn more about financing options and available homes in Kansas City. 

Get the scoop on rising interest rates from Jim Alderman of NASB, the preferred lender of Summit Homes. 

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