FHA to reduce cost of mortgage insurance

FHA to reduce cost of mortgage insurance

In an attempt to bring more First-Time Homebuyers back into the housing market, the Federal Housing Administration ("FHA") recently announced that it would reduce its annual mortgage insurance premiums from 1.35 percent to 0.85 percent.  

This is estimated to save borrowers approximately $1,000 per year on a $200,000.00 loan, for example.

After requiring a $1.7 billion bailout from the federal government as a result of a high number of loan defaults during the financial crisis in 2013, FHA more than doubled the mortgage insurance premiums to rebuild its funds and raised the average credit scores required in order to qualify for an FHA loan.  

Now that FHA has started to earn profits, industry insiders called for FHA to reduce the insurance premiums to allow more borrowers back into the market.  FHA has also stated that they will take additional steps over the upcoming months to reduce additional mortgage costs by cutting red tape and making lending standards more clear.

The new policy is expected to go into effect by the end of January 2015.

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