Actions taken by the Biden administration on Wednesday are expected to save thousands of homebuyers an average of $800 annually, the White House said.
The White House said the annual mortgage insurance premium on Federal Housing Administration-insured loans will drop by .3 percentage points to .55% for most new borrowers. This premium is the fee paid by homeowners with FHA-insured mortgages.
That means for every $100,000 of a loan, the buyer will save $300 per year. With the average FHA loan going for just under $270,000, the typical homebuyer will save $24,000 throughout a 30-year loan. The White House estimates that 850,000 homebuyers will be impacted by the decision, which goes into effect March 20.
These types of loans are generally geared toward first-time homebuyers. Orphe Divounguy, a senior macroeconomist for Zillow Home Loans, told Scripps News that FHA loans help lower-income Americans access loans they otherwise would not be eligible for.
“It is a positive for potential first-time homebuyers but also very much so for minorities; even though the program doesn’t have an income threshold, the majority of participants in FHA programs are first-time homebuyers and minority homebuyers,” he said.
Homeownership gap between White and Black families is at all-time high
Black homebuyers face larger issues when it comes to credit scores and a lack of generational help that would assist in a downpayment.
Divounguy said this program could make buying a home more appealing for first-time homebuyers, even with high-interest rates. Interest rates on 30-year fixed mortgages have remained above 6% since September. This period represents the highest interest rates have been since 2008.
"It shows to investors that the U.S. government, through HUD and the FHA, is willing to support potential homebuyers,” Divounguy said.
The National Association of Home Builders has indicated there was a sharp drop in the share of homebuyers utilizing FHA-insured loans in late 2022. About 7.5% of homebuyers in late 2022 utilized FHA-insured loans. In early 2021, that share was nearly 18%.
Divounguy expects that interest rates will drop as the Federal Reserve gets a better handle on inflation. This will make things more affordable for consumers.
“I think potential homebuyers are facing a lot of interest-rate volatility right now, so my advice to potential homebuyers is to find a trusted home mortgage lending professional and get preapproved, try to lock in a rate,” he said. “If you’re going to come out in the housing market, that should be the first step. And, of course, find an agent. Inventory growth remains very sluggish. Inventories we have to increase roughly 40-50 percent to get back to where it was before the pandemic. So being able to get an agent who will help you go through all your options in the housing market, I think, will be very important.”
