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  • Government Backed Mortgages Are About To Get Cheaper

    January 14, 2017 | Blog Mortgages
  • Government Backed Mortgage

    Good news! It will now cost you 0.25% less to own a home in America if you use are using the government-backed mortgages. This translates to an annual saving of about 500 dollars annually. It could, however, be higher if your mortgage costs more. This new year's gift from the Obama administration, which is wrapping up its tenure, was announced by the Department of Housing and Urban Development on Monday.

    This directive will be implemented by the Federal Housing Administration (FHA) which is responsible for ensuring the low-cost mortgages. A lucky lot of homeowners who will get to enjoy this subsidy are the ones who acquire a home on or after the 27th January 2017. So, if you are thinking of getting that new apartment, you would rather wait for a few more days as the apartment deals are going to get better. This directive will not apply to home deals that were closed before the 27th January 2017.

    Why have they sweetened the government-backed mortgages?

    HUD Secretary Julian Castro attributes this reduction to the prosperity of the Federal Housing Administration in the last four years. In a press release issued on Monday, Mr. Castro said that the FHA had experienced four straight years of growth in its reserves which are now able to cover even future claims. Therefore, he said that they wanted to relieve the working class families of the burden of paying mortgages even though by a little bit. This move is likely to attract more new home owners as they will now be able to afford the home.

    How will it work?

    Worth noting is that it is not the premiums that you will pay for your mortgage that will be reduced. What will cost you much lesser is the amount that you pay for your insurance premiums supposing that yours is a government-backed mortgage where you have taken an insurance policy to cover your mortgage with the FHA. Currently, if you are taking an FHA insured mortgage, you will pay as little as 3.5% deposit on the mortgage. However, you will have to take out an insurance cover for your mortgage which is about 1.35% currently.

    After January 27th, this percentage will reduce to about 1.1%. The 1.35% had been increasing between the years 2010-2015. This increase had been to cater for the stabilization of the Mutual Mortgage Insurance Fund which was under the FHA. This had been counter-productive as it locked out the low-income earners and first time home owners who were meant to be the beneficiaries of the FHA insurance plan. These reduced premiums will have a dollar value of about $500 which will now attract more first-time homeowners and the lower income earners.

    Can people who want apartment deals for the high-end market still benefit from this?

    I know that a lot of people must be wondering what the limit on this FHA insurance that is making owning your dream apartment cheaper is. The good news is that there is no set dollar amount limit to accessing this facility. However, it is subject to other conditions. The first one is that your mortgage must not exceed the Nationwide Mortgage Limit, the Loan-to-Value ratio (L.T.V) and the nationwide area mortgage limit.

    All these limits are dependent on parameters such as the stage of construction, the type of borrower, the type of transaction and physical location among others. However, of relief to you who want apartment deals in the high-end market is that the FHA increased the price ceiling for the year 2017. The ceiling went up to about $1.2 M which is a good range for someone who wants to own an upmarket apartment. The price floor for the lower end market has been increased in the same breath.

    Parting shot

    This new reduction in the insurance premiums associated with home ownership has come at the right time. With the majority of the Americans apprehensive about a Trump presidency, most of them were going to shy away from taking expensive mortgages to finance their home ownership journey.

    The reduction in the insurance premiums for the government-backed mortgages will go a long way in helping the American population get better apartment deals, bungalow deals, duplex deals or even condominium deals. This will entice them to get the mortgages that they would have otherwise shied away from.