The Federal Housing Authority is reducing FHA mortgage-insurance rates from .6 percent to .85 percent beginning January 27, 2017. The U.S. Dept. of Housing and Urban Development estimates that this quarter-point reduction will save borrowers an average of $500 this year. The reduced costs associated with the loan will also help more credit-worthy borrowers qualify.
FHA and other government-insured and government-backed loans encourage homeownership by making home loans accessible to credit-qualified borrowers who lack the cash or the stellar credit score needed to qualify for a conventional loan. The loans are less risky to lenders because the mortgage insurance reimburses them if borrowers default.
The National Association of Realtors would like to see further changes implemented. For example, until fairly recently, FHA mortgage-insurance premiums stopped once borrowers had built 20 percent equity in their homes — 20 percent being the minimum down payment lenders typically require for uninsured conventional loans. However, the FHA since has implemented what NAR calls a “life of loan” requirement that forces homeowners to continue paying mortgage insurance no matter how much equity they have.