FHA Lowers Mortgage Insurance for First Time Home Buyers


New home buyers always have a lot of different things to consider, when considering the type of loan and lender to facilitate the financing. It's enough to confuse even those who have bought several properties in the past, but for first time home buyers it can be even more confounding.

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One thing that is often overlooked until the moment you close on the home is the mortgage insurance.

Mortgage insurance is just what it sounds like - an insurance policy homebuyers usually have to have in place to protect their lender from the financial impact if you default on the loan.

In some cases those with a 20% or higher down payment won't have to pay mortgage insurance, but this is rare - and even rarer among first time home buyers who likely don't have the large cash down payments needed to meet that basic requirement.

One option worth looking into is the federal government. Federal Housing Administration loans - FHA loans for short - have been gaining in popularity over the last several years thanks to the fact that they are easier for first time home buyers to qualify for and that they require lower down payments while still offering good interest rates. But now, the FHA has reduced its mortgage insurance premiums to help make getting a home even more affordable for first time buyers.

Here are some of the key points:
  • The reductions on the FHA mortgage insurance rates were announced in 2015 and are now in full effect.
  • Insurance rates are based on down payment amounts. Those paying less than 5% of the total price of the home as a down payment on a 30 year loan will pay .80% - a .5% drop.
  • Loans of more than $625,000 pay an additional 0.25%
  • You'll have to have applied for your FHA loan after January 26, 2015 in order to receive this discount.
  • Total savings for an average 30 year fixed rate mortgage can expect to save about $500 per year for every $100,000 their home costs.
  • That overall $500 savings is significant, and it's also important to pay attention to it since a lower interest rate translates to lower monthly payments each month - about $42.
  • The FHA loans have been used by thousands, and it's expected that they'll continue to be very popular since they are one of the best routes to owning a home for those who are buying their first home. As a result, this reduction in rates could have a tremendous impact on countless Americans.

It's important to note that only new loans are eligible for FHA loans with the new lower insurance premiums. However, those with an existing FHA loan can move through the FHA refinancing process and get a better rate as well as a reduced MIP - and potentially even a lower monthly payment. The FHA will continue to be a major factor in the real estate and home buying world, and it's something that is well worth taking a look at if you're buying your first home - it has numerous advantages that help it stand out.