Good news for any borrowers looking for an affordable mortgage: the FHA is doing you yet another favor by announcing recently that they will be lowering the premium cost (insurance fund for people who default on their loans) from 1.35% of the mortgage’s total value to only 0.85%. According to CNNMoney, the average borrower with an FHA loan will save around $900 a year in their payments to the FHA, providing even more relief for those who already needed the helping hand.
Originally, the agency raised its premium price to offset the potential loses it could suffer should borrowers default on their loans though foreclosures have been dropping in recent years due to tighter lending requirements and more extensive background checks. The primary reason for this price cut by the FHA is that, given the improving conditions in the housing market as well as the economy, the government entity no longer feels it needs to be bolstered up with extra insurance funds. The White House projects that despite the rate drop, the FHA’s reserve fund will grow to about $10 billion yearly.
The FHA isn’t the only government lender to drop its prices. Last month government-backed lenders Fannie Mae and Freddie Mac announced that they will now be offering mortgages to borrowers with a 3% down payment option from the original 5%. Fannie Mae loans took effect in mid-December and those from Freddie Mac will take effect beginning March 23, 2015.