FHA Offers Lower Mortgage Insurance Premiums To New Borrowers In 2015
New FHA mortgage borrowers in 2015 will be offer a reduced Mortgage Insurance Premium (MIP).
This is the first time that the Federal Housing Administration (FHA) has reduced its MIP for its borrowers since 2001. It has been a long time coming for many interested home buyers and millennials who have been hesitant on committing to an FHA mortgage due to its high MIP and required Upfront Mortgage Insurance Premium (UFMIP).
Federal Housing Administration Background
The Federal Housing Administration also often referred to as the FHA was established in 1934 to help stabilize homeownership. The FHA can be mistaken as a mortgage lending agency but in all actuality they only help back up mortgage loans in the event that the mortgage borrower is not able to help pay back the loan. FHA mortgages has been the ideal program for first-time home buyers across the nation.
Prior to the agency’s existence, most home loans required for borrowers to put down at least 50 percent for a home purchase. Not only did that play a factor in making these loans implausible for buyers to afford, but so did skyrocketing interest rates and irrational loan terms; expecting for borrowers to pay back the entire loan within five years or less.
With the short amount of time given to homeowners to pay back the mortgage loan, this created higher monthly mortgage payments and caused for several potential buyers to shy away from homeownership. The FHA wasn’t yet formed until the pass of the National Housing Act of 1934.
In order for the agency to help insure these mortgage loans, the lenders would have to ensure that all of their borrowers met FHA requirements. The FHA would then be able to help back up these loans insuring the prevention of a loss to lenders through mortgage loan default.
The Benefits of Reduction in FHA MIP
With rates nearing a two-year low, FHA mortgage loans would be the most affordable than it has ever been. Usually requiring only a 3.5 percent down payment from its borrowers, the agency may have several mortgage programs beat in 2015.
After January 26th, new homeowners can save more with an FHA-insured mortgage loan and existing homeowners can refinance for a reduction in mortgage insurance premiums through the FHA Streamline Refinance.
Just six months prior to the drop in mortgage rates, most interested home buyers were unsure of which mortgage program to go with. Now that the FHA has reduced its premiums, we should expect to see the share of FHA-Insured Origination volume go up in the next HUD report.
Jessica Lucas
