In news that will make it more easy for higher risk applicants to obtain loans, HUD has announced that mortgage insurance premiums on FHA-backed loans will be lower by 25 basis points (1/4 point) on loans endorsed starting January 27, 2017. The new premium schedule which will takes effect for residential mortgage loans is expected to save the average loan applicant/home buyer $500 a year in insurance costs.
HUD Secretary Julián Castro stated that the cut aligns the FHA’s policies with “today’s risk environment” and “comes at the right time” for borrowers who are now dealing with increases of interest rates. “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,” Castro said. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”
Edward Golding, HUD principal deputy assistant secretary for housing declared that “We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers. Golding also declared “Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families. This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”
Under the new schedule, a home purchase with a base loan amount of up to $625,000, with an 85-percent loan-to-value ratio and a 30-year loan term, will require an annual mortgage insurance premium of 55 basis points, down from 80 basis points. A 15-year loan of that same amount and with a 90-percent LTV ratio will require an MIP of 25 basis points, down from 45. To read more info click here.
National Association of Realtors (NAR) President Bill Brown has positive thoughts about the move indicating that these were positive steps by the government but more needs to be done. NAR position is for the FHA to take a few more steps to assist home buyers. The main move they would like to see is the elimination FHA’s “life of loan” mortgage insurance requirement. The requirement which forces borrowers to maintain mortgage insurance regardless of their equity position. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property. “Our work continues, but we’re encouraged by today’s announcement.” Brown said.
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