FHA mortgages are a fantastic loan product for first-time home buyers, refinancing, and building your dream home.
Why are FHA mortgages so great? Because they have flexible requirements which assist buyers with lower credit scores and savings to be able to obtain their homeownership goals.
On top of that—the Biden-Harris administration recently declared that the U.S. Department of Housing and Urban Development would reduce its annual mortgage insurance premium for FHA mortgages.
This is massive news for homebuyers.
We’ll review what an FHA mortgage is, the 411 on private mortgage insurance, and what the FHA mortgage fee cut means for buyers. Lastly, we’ll share how to receive a free FHA mortgage quote.
What is an FHA Mortgage?
An FHA mortgage is backed by the Federal Housing Administration, which is a branch of the U.S. Department of Housing and Urban Development (HUD).
The FHA works with private lenders so that they can offer better rates and terms to help buyers afford a home.
There are various types of FHA mortgage products, such as mortgages for first-time buyers, construction, and 203(K).
Construction and 203(K) mortgages enable buyers to buy a property and build or renovate their home into one single mortgage.
FHA mortgage requirements:
It’s important to note that the FHA guidelines will depend on which type of FHA mortgage you decide on. It’s best to speak with an FHA mortgage expert to review which FHA mortgage would be ideal for your homeownership goals.
For standard home mortgages, you can expect a hefty down payment, sometimes as large as 20% of the home you are purchasing. This could have a detrimental impact on the homebuying process if you don’t have that amount in your savings.
With an FHA mortgage, the minimum down payment you must make is 3.5%, almost six times less than the average. This eases the financial burden for many homebuyers.
FHA mortgages’ credit score requirements are lower than most conventional mortgages. Usually, your credit score is an integral component of your home mortgage offer and can make or break it for potential homebuyers.
This isn’t a deal-breaker for FHA mortgages, meaning those with lower credit scores are still eligible to apply for a home mortgage.
Lastly, you’ll be required to pay for private mortgage insurance. A PMI fee is required for FHA mortgages to insure the mortgage.
Understanding the FHA mortgage insurance fee and how the new PMI fee reduction impacts the homebuying process is essential.
But what is private mortgage insurance?
Private mortgage insurance is pretty straightforward.
Here’s the basics—private mortgage insurance, or PMI, is offered through private insurance companies and is incorporated into FHA loans to protect the lender in the unfortunate event that the mortgage defaults.
Depending on the buyer’s situation, lenders may offer various ways for buyers to pay their PMI fee. The payment may be rolled up into a one-time cost, it could be included in your monthly mortgage payments, or both.
Using a mortgage calculator, you can determine how much you may have to pay on your monthly mortgage and PMI. While these calculators only provide an estimate as they’re unable to account for your entire financial situation, they’re a great starting point.
Now that we understand the basics, let’s get into what this new federal action means for you.
What the PMI cut means for homeBuyers
Starting in March 2023, the FHA Mortgage fee is to be reduced from .85% to .55%, an astonishing drop of 30 percentage points.
This federal action is to help make affording a home more achievable, as purchasing a home in the past few years has become more challenging for first-time homebuyers.
This is in part due to the effects of the pandemic. The pandemic impacted employment and the supply and demand of homes, further increasing interest rates over the years.
Lowering the FHA mortgage fee creates many opportunities for buyers, giving them more purchasing power and financial flexibility.
The PMI cut is said to save an average of $800 per year for almost 850,000 homebuyers and owners in 2023.
Let’s say you take out a mortgage for 30 years – that would potentially save around $24,000.
Reducing the PMI fee means more money in your pocket
These extra savings can be used in various ways such as making your offer stand out when you decide to purchase a home, being able to spend more on a home, or paying more towards your down payment.
If you’re looking to build, this can mean you’re able to get those features that maybe seemed to be ‘extra’ before.
If you want to renovate, you can use the extra savings to put back into your home.
Additionally, you can use your savings for other situations, such as:
FHA mortgages already have beneficial requirements that assist home buyers in affording a home, like lower interest rates, a lower down payment, and lower than typical credit score requirements.
This new measure is a game-changer for homebuyers in pursuit of purchasing their first home, refinancing, or making updates to their current home.
How to take the next step with The Federal Savings Bank
A great place to start the process is by meeting with an FHA mortgage-approved lender to review your options.
Before meeting with a lender, it would be beneficial to research, organize your financial information, and determine your budget. This will help your lender understand your financial situation and homebuying goals.
When you’re ready—reach out to The Federal Savings Bank to receive a free mortgage quote.
We provide a wide range of FHA mortgages as part of our commitment to serving our communities.
We’ll answer any questions you may have about FHA mortgages, the PMI fee reduction, and the homebuying process.
Call us today at 877-788-3520.