SEATTLE (1/14/15)--Cuts to Federal Housing Administration (FHA) premiums proposed by President Barack Obama and backed by the Credit Union National Association could save home owners and borrowers thousands of dollars, according to an analysis by Zillow.
In a speech last week, President Obama announced that the FHA will reduce annual mortgage insurance premiums (MIP) by half a percentage point. Premiums for those borrowers putting between 3.5% and 5% down on their home will be lowered to 0.85%, from 1.35%. For borrowers with a 5% down payment or greater, the premiums will fall to 0.8%, from 1.30%.
FHA mortgage premiums are paid annually in 12 monthly installments, on top of principal, interest and insurance. For new FHA loans, the premiums must be paid over the entire life of the loan, unlike pre-2013 loans where mortgage insurance was waived after homeowners achieved 20% equity in their home.
Assuming a borrower is taking out a loan on a typical $175,000 home (roughly the national U.S. median home value, as of November), the savings for FHA-insured borrowers could be substantial, according to Zillow. After 30 years, a borrower putting down 3.5% could save more than $14,700 over the life of a 30-year loan. A borrower putting down 5% would save more than $14,300.
If the expectations come true, those numbers would represent a big boost to sales volumes that remain below historic norms, even as the housing market overall has recovered well since bottoming in late 2011 and early 2012, Zillow said.
Obama's announcement that the FHA will lower annual mortgage insurance premiums was met with praise by CUNA.
CUNA President/CEO Jim Nussle welcomed the announcement, but advocated for all agencies to take additional steps to assist credit unions and their members.