FHA’s Mortgage Insurance premiums are set to reduce by .5% on January 26, 2015. The current insurance premium rate is 1.35%, so it will reduce to .85%. On a $500,000 loan amount (typical for the Bay Area), this translates to a savings of $208.33/month. Wow!
Prior to this announcement, FHA insurance premiums were increasing gradually but steadily. The premium was just .50% in 2008, then it increased that summer to .55%, .90% in 2010, 1.15% in 2011, 1.25% in 2012, and finally has been 1.35% since 2013. This final increase resulted in a pretty significant reduction of FHA applications, at least within my personal client base.
This announcement will help expand opportunities for borrowers, especially first time homebuyers, to qualify for home loans, and with this reduction, FHA might provide more competition to Conventional loans.
As a brief highlight, the main benefits of FHA financing over Conventional financing are:
- Lower down payment requirements (3.5%)
- Lower credit score allowances
- Bankruptcy okay (4 years passed instead of 7 on Conventional)
- Foreclosure okay (3 years passed instead of 7 on Conventional)
