As the industry adjusts to the Department of Housing and Urban Development’s decision to suspend the reduction of Federal Housing Administration mortgage insurance premiums, consumers are also left to deal with the impact.
Technically, the FHA’s 25 basis point-cut was slated to go into effect Jan. 27, meaning no borrowers were caught in the middle and already using the lowered rate.
Instead, as of this afternoon, FHA MIP cuts are suspended indefinitely as the Trump administration reviews the cut.
For borrowers looking to buy a home now or soon, Tim Manni, mortgage expert at NerdWallet, helped explain how this news impact their situation.
“With the annual premium now remaining at 0.85% for most FHA borrowers, it renews the debate among first-time buyers whether an FHA or conventional loan makes the most sense,” said Manni.
Manni stated that the impact depends on a borrower's credit situation.
Here’s what is means for borrowers with good credit:
If you’re a borrower with good credit, today’s announcement should motivate you to consider multiple home loan options, not just an FHA loan, even if you don’t have much saved for a down payment. It’s important to remember that while FHA interest rates tend to be lower than some conventional mortgages, the insurance premiums could cost you more over the life of the loan. With both an upfront premium, as well as an annual premium that never goes away, comparing the insurance costs alone between an FHA and conventional loan could make your decision a lot easier.
Here’s what is means for borrowers with poor credit:
“On the other hand, if you’re a borrower with poor credit, an FHA loan is likely to be your only option. Since Obama’s reduction hadn’t yet gone into effect, it simply means it’s back to business as usual in terms of what an FHA loan will cost you. The reduction was slated to save new FHA borrowers about $42 a month in the first year. That amount should not be a make-or-break number for any homebuyer. If you’re in the process of applying for a mortgage and your housing costs leave you little financial wiggle room each month, you need to adjust the amount of income you’re dedicating to your home loan and shop for cheaper homes.”