No FHA Fee Cut For Now. But Don’t Rule It Out In 2017

FHA MIP Rates To Stay Put

Mortgage insurance fees for the country’s most popular government-backed loan program will not fall as expected on January 27, 2017.

Hours after the inauguration, the Trump administration rolled back FHA fee cuts announced on January 9 by outgoing HUD secretary Julian Castro.

The cuts would have reduced annual FHA mortgage insurance fees by 0.25%, or $21 per month for each $100,000 borrowed.

But it’s not time for FHA borrowers to completely rule out an FHA mortgage insurance premium (MIP) cut in 2017.

The program is healthy, flush with cash, and stable.

2017 will still be a stellar year for FHA loan borrowers.

What Is An FHA Loan?

FHA loans are the “top dog” when it comes to government-sponsored loan programs.

Its flexibility has made it popular with first-time and repeat buyers alike.

Created in 1934 in the face of the Great Depression, FHA loans were ushered onto the housing finance scene to stabilize markets.

To this day, that primary mission is still playing out.

About 40% of younger first-time home buyers use FHA — because they likely could not buy a home without it. FHA loans require just 3.5% down, and buyers can have a credit score as low as 580 to qualify for that down payment level.

That props up the housing market.

Homeowners can sell their homes to new, eager buyers. These homeowners can move up to more expensive homes that better suit their needs.

FHA loans, then, benefit every segment of the home market — from the $100,000 starter home market to the multi-million dollar housing segment.

This trickle-up effect bolsters the housing market and the U.S. economy as a whole.

FHA loans are a boon to current and future homeowners nationwide.

FHA Fee Cut Most Likely Delayed, Not Canceled

FHA home buyers — and those using the popular FHA streamline refinance — should not give up hope for an FHA premium cut in 2017.

The current administration could recognize the viability of the program and its stability.

The program has benefitted from lower default rates of late. It has met its congressionally mandated cash reserve requirement of 2% of its loan balance sheet.

The administration could cut fees even deeper than originally announced.

The new administration has prided itself as representing the working class, and that’s exactly the demographic that would benefit most from an FHA fee reduction.

A deep FHA fee cut could move thousands of homeowners from “denied” to “approved” status.

Forty dollars per month on a $200,000 loan may not seem like much, but it could lower an FHA borrower’s debt-to-income ratio enough to push it into approved territory.

Donald Trump himself bemoaned via a tweet that the U.S. homeownership rate was at a 51-year low of 62.9%. Not since 1965 has a smaller portion of Americans owned a home.

There’s perhaps no better way to goose that homeownership rate than making FHA lending ultra-cheap and available to the regular working-class homebuyer.

There’s no guarantee that FHA MIP rate cuts will be re-introduced, but the chances are very good.

FHA home buyers should hang onto hope.

Should FHA Buyers Wait For A New FHA Premium Cut?

Even if FHA rate premiums stay where they are — at 0.85% of the loan amount per year — that’s still a very good deal.

As recently as early 2015, annual premiums were 1.35%, or about $100 more per month on a $250,000 FHA mortgage. Current FHA premiums have been in effect for about two years, but have no doubt saved buyers billions since those cuts were announced.

Many FHA buyers will ask whether they should postpone home buying until a new premium cut is rolled out.

That could be a mistake.

Home prices are going up at least 5% per year. Chasing home prices upward rarely pays off.

And, inventories are shrinking by the day.

It could be very hard to find a starter home in 2017. That means prices will rise and competition will be fierce.

Bidding wars could become the rule, not the exception.

Home buyers will still have access to new FHA premiums, once re-introduced, via an FHA streamline refinance.

With an FHA streamline, you can move into the new, lower FHA premiums as long as there is an adequate reduction in rate + MIP, according to FHA guidelines.

FHA buyers might come out ahead by buying now, even at “higher” FHA premiums.

What Are Today’s FHA Rates?

FHA rates are still available in the 3s from some lenders. Get a rate quote, which comes with no obligation, and require no social security number to start.