According to Fannie Mae's January 2015 National Housing Survey™, consumer optimism toward the housing market increased last month with 67 percent of respondents saying now is a good time to buy a home. To help bring qualified buyers to the market, the Federal Housing Administration (FHA) recently reduced new borrowers’ annual mortgage insurance premiums (MIP) by 0.5 percent.
This reduction may not sound like much, but it’s projected to save future FHA borrowers an average of $900 annually and help 250,000 new homebuyers purchase their first home over the next three years. For many of the 800,000 households who are currently using the FHA loan program, they may also be able to realize a savings from the reduction in MIP with a FHA refinance.
Millennials are one particular beneficiary of these newly-reduced FHA rates. As children of baby boomers, millennials comprise one of the largest generations in recent history. They are now entering the age and income brackets that make them likely candidates for home-ownership but have generally been more hesitant to enter the housing market than prior generations. Time will tell if the recent FHA rate reductions will draw them into home-ownership but reductions in overall cost certainly won’t be a deterrent.
As the nation’s housing market continues to improve, it’s important to note that the FHA is not lowering its underwriting standards or luring irresponsible borrowers into homeownership. Rather, it is enabling qualified buyers to safely enter the market without exposing taxpayers to unnecessary risks.
More changes to both FHA and conventional loans may be needed to bring qualified buyers back to the housing market, but we’re on the right track. With the new FHA reduction in MIP, along with a variety of other home lending options, a mortgage lending professional is able to connect homebuyers and refinancers with a program that will help them reach their goals.
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