850,000 buyers and homeowners with new FHA-insured mortgages are expected to benefit in 2023.
Today, the Biden-Harris administration announced action that will save homebuyers and homeowners with new FHA-insured mortgages an average of $800 a year, lowering housing costs for about 850,000 homebuyers and homeowners in 2023.
Vice President Harris and HUD Secretary Fudge will travel to Bowie, Maryland today to announce that HUD, through the Federal Housing Administration (FHA), will reduce its annual mortgage insurance premium by 0 .30 percentage points from 0.85% to 0.55% for most new borrowers. The mortgage insurance premium is the monthly fee that homeowners with FHA-insured mortgages pay to insure their mortgages, which they pay in addition to their monthly principal and interest payments.
Home ownership is currently the primary source of wealth creation for most American households. But because of a national deficit in affordable housing supply and changing housing demand during the pandemic, first-time home buyers have struggled in recent years to acquire homeownership. First-generation homebuyers and first-time homebuyers of color—who are less likely to have sufficient resources for a significant down payment due to a long-standing gap in intergenerational wealth transfers—have been particularly hard hit.
Today’s announcement is an important step in making home ownership more affordable. FHA-insured mortgages, which accounted for 7.5% of home sales in the third quarter of 2022, target homebuyers who may otherwise be unable to acquire homeownership. This cost-cutting measure will make home buying more attainable and affordable for more low- and moderate-income borrowers.
FHA insures loans with low down payments and more flexible underwriting, allowing families to start building wealth through home ownership earlier than they might otherwise, and keeping the door open for creditworthy borrowers. More than 80% of FHA borrowers are first-time homebuyers, and over 25% are homebuyers of color. The average home purchased with FHA-insured mortgages costs about half the price of the overall national median home and has an average mortgage amount of less than $270,000.
By reducing their annual mortgage insurance premium by 0.30 percentage points, the FHA’s action will help new homebuyers across the country acquire a home. For example, the average homebuyer in Prince George’s County — where Vice President Harris and Secretary Fudge are traveling today — will save nearly $900 a year, based on the county’s median home price of about $300,000. Additional:
- A family buying a home in Detroit with a $200,000 mortgage will save $600 a year
- A family buying a home in Cincinnati with a $300,000 mortgage will save $900 a year
- A family buying a home in Phoenix with a $400,000 mortgage will save $1,200 a year
- A family buying an Austin home with a $500,000 mortgage will save $1,500 a year
Over the past several years, the FHA’s mortgage insurance fund has accumulated reserves at a level that is more than five times the required threshold set by Congress. This was made possible by HUD’s responsible and responsive management policies, rising housing prices, and a significant volume of refinancing, which together resulted in the accumulation of significant reserves. This dynamic enables HUD to calibrate premiums more appropriately to the performance of FHA-insured loans and pass savings on to consumers in a responsible manner and without jeopardizing the long-term sustainability of the FHA mortgage insurance fund. The premium reduction will take effect on March 20 and will be reflected in the president’s budget for fiscal year 2024.
The Biden-Harris administration’s commitment to housing stability and affordability
Today’s announcement follows a series of actions taken by the Biden-Harris administration to promote housing stability and affordability. Due in part to policies put in place by the administration, foreclosures and evictions remain well below pre-pandemic levels. The administration implemented a series of measures that protected homeowners from foreclosure, including enhanced loan modifications to resolve delinquencies. In addition, the Homeowner Assistance Fund helps homeowners catch up on their mortgage and utility payments. The administration also created a first-of-its-kind national eviction prevention infrastructure, providing 8 million payments to households at risk of eviction.
In addition to the changes announced today, the Administration and HUD have taken a number of steps to make homeownership a reality for more Americans. HUD changed FHA underwriting policies to allow lenders to use a positive rental history when evaluating the creditworthiness of FHA-insured mortgage applicants—making it easier to qualify first-time homebuyers. In addition, HUD has expanded access to housing counseling so that consumers can seek help from more than 1,500 HUD-approved housing counseling agencies and 4,000 HUD-certified housing counselors. HUD changed the way student loan debt is evaluated in FHA mortgage underwriting, allowing more borrowers making student loan payments to qualify for an FHA-insured mortgage. And last year, the Property Appraisal and Valuation Equity Task Force (PAVE) announced more than 20 specific agency actions to eradicate racial and ethnic bias in home appraisals, including strengthening safeguards against illegal discrimination at all stages of the home appraisal, empowering users to take action and build a well-trained, accessible and diverse evaluator workforce.
The president also took significant steps to increase affordability for renters and homeowners by increasing the overall housing supply. Last May, the administration released a housing action plan that set a goal of closing America’s housing supply gap in five years. For example, the Supply Action Plan calls on Congress to pass the Neighborhood Housing Investment Act, which would encourage the supply of single-family homes available for sale to low- and moderate-income families in communities across the country.
The administration also provided rental assistance to more than 100,000 additional households through FY22 and FY23 appropriations and the American bailout. And in January, the administration proposed a rule to affirmatively promote fair housing and announced new actions to increase fairness in the rental market through its Tenants Bill of Rights, which lays out principles and actions to encourage federal, state, local and private sectoral action to strengthen tenant protection and promote rental affordability.