Did you know the Department of Housing and Urban Development (HUD) reduced annual FHA mortgage insurance premiums earlier this year? The announcement included an outline of the reduction for all FHA loans with closing/disbursement dates on or after January 27, 2017. And at .25%, the change means a savings of $500 annually, or approximately $41.67 monthly for borrowers with a typical $200,000 mortgage balance.
We are near the halfway point of 2017, and finding many potential homebuyers don’t know about, or understand, HUD’s decision. Here’s a simple list highlighting what you need to know about the reduction in FHA mortgage insurance rates:
- The January 27, 2017 effective date includes both mortgages closed or refinance transactions funded, however, the federal Truth-In-Lending Act doesn’t allow refinance transactions to go through until the 3-day decision to void the contract has passed.
- The new annual rates are .60% for all loans with terms more than 15 years, and a loan-to-value (LTV) ratio of more than 95%. For loans with terms of 15 years or less, the new rate is .50 % for loans less than 625,500 and LTV over 90%. Loans with 90% or less LTV will have new rate of .25%. Borrowers with loan amounts exceeding $625,500 will pay between 25% and ,50% depending on LTV.
FHA borrowers should view this as great news, as it is in effect at a time just after mortgage rates have increased slightly, and may offset any lost buying power due to higher rates.
For additional information, please refer to HUD Mortgagee letter 2017-01
Rates are at close to pre-housing crisis levels indicating a strength in the risk level and surplus reserves in the mortgage insurance fund. The Federal Credit Reserve Act mandates the level be maintained at a minimum of 2% of loan balances to mitigate any losses due to defaults. During the last 4 years, ending on the fiscal year of September 30, 2016, the fund increased by 44 billion dollars, so any further surpluses created may lead to future mortgage insurance decreases and an increase housing affordability for FHA borrowers.
Want to learn more about how the reduction in mortgage insurance may impact you as you walk through the homebuying process? Contact us, today.