On January 9th, HUD announced a cut in the annual (monthly) mortgage insurance fee – it was going from .85% to .60% effective with closings on January 27, 2017. It would save borrowers about $21 on every $100,000 borrowed. Shortly after the inauguration of President Trump, the new administration announced that it was rescinding that cut – at least for now. None of us really know why the cut was announced and then taken back – but for now, FHA fees stay where they were!
What does that mean going forward? Should you wait to see if HUD does reduce the fee in 2017? Is there a chance that HUD may do that? The answer is possibly – but I would not wait for the fee to decrease. FHA needs to have a congressionally mandated cash reserve of 2%. They have that now – there were a few years where they didn't have it. For now, they have met the reserve requirement which is why there is a chance that after the new administration reviews numbers, we may see a decrease in the mortgage insurance. However, we also expect interest rates to increase this year and home prices have also been increasing. If you wait to see if there is a decrease, you may lose buying power based on an increase in interest rates and/or an increase in home prices.
The current FHA mortgage insurance is still lower than it was for a few years. FHA rates tend to be lower than conventional rates, so for many buyers, FHA is still a great way to finance a home. For many buyers, the monthly payment may be lower than a conventional loan and with a minimum down payment of 3.5% and the ability to have a credit score as low as 580, FHA is a great way to buy a home now.
Check with your loan officer and see what you can qualify for with an FHA loan – you may be shopping for a new home sooner than you think!!