FHA to Cut Premium Mortgage Insurance

First time home buyers with modest income and a fair credit score could find themselves saving some money.  In a House bill that passed not too long ago, FHA would lower their upfront mortgage insurance premium down 25 basis points.  FHA mortgages allow borrowers to put less than 20% down, provided they pay a mortgage premium to protect the lender from delinquency.  The insurance premium is 1.75% of the purchase price.  Now, if this bill passes the Senate and is enacted, would lower the premium to 1.5%.

The bill, named the Housing Financial Literacy Act, would encourage buyers to complete a first-time home buyer seminar to make sure buyers are aware of their finances and make them “better borrowers”.  Along with the seminar, they would then receive the discount on their upfront mortgage insurance. 

Analysts say, however, this won’t help FHA’s market share of mortgages.  The savings, they believe, are too slim to make a difference.  In the last couple of years, we are seeing more borrowers opt for conventional loans.  Market share of the mortgages for FHA dipped, and continues to see its lowest shares in a decade.  Currently, FHA loans are just shy of 17% of the share.  This house bill is hoping to gain more of the market share by lowering the upfront mortgage insurance. 

The bill, H.R. 2162, is currently in the Senate.  If passed, it will go on to the President’s desk for review and approval.  If signed, the Housing Financial Literacy Act could go into effect by 2020.