The Biden administration has announced new measures it says could help make buying and owning a home more affordable for hundreds of thousands of people.
The plan will cut mortgage insurance costs by 30% for buyers who take out Federal Housing Administration-backed mortgage loans, from 0.85% to 0.55%. The reduction could save 850,000 homebuyers and homeowners who have FHA loans an average of $800 this year, according to the Biden administration.
The discount takes effect March 20.
Mortgage insurance is the additional expense that homebuyers have to pay if they put down less than 20% when buying a property. While the mortgage insurance attached to some home loans goes away after homeowners pay off a certain amount of their loan balance, the mortgage insurance tied to those FHA loans remains until the entire mortgage is paid off, unless the buyer put down at least 10% at the time of purchase.
Of course, homeowners can always refinance out of an FHA mortgage loan.
FHA mortgages are intended for low- and middle-income homebuyers, as they require lower down payments and allow for more flexibility on credit requirements than conventional mortgage loans.
The announcement comes as housing prices remain unaffordable in many parts of the U.S. By the end of last year, the median home price had reached $467,700. Combined with rising interest rates and dwindling supply, the barriers to homeownership have only grown for the most financially vulnerable buyers.
“A home represents financial security, the opportunity to build wealth and equity that can help put your child through college, afford retirement, create intergenerational wealth within your family,” Vice President Kamala Harris said at an event in Bowie, Maryland, where the cost reductions were announced Wednesday.
“That’s what all of this represents,” Harris said. “It is so much bigger than a piece of property.”