A new initiative that will reduce primary mortgage insurance (PMI) for FHA loans by 40 percent to allow more individuals to qualify and become homeowners. The program —set to kick off on March 20 —is projected to benefit 850,000 home buyers.
While introducing the initiative during an appearance at Bowie State University, Harris shared the excitement she and her sister felt when their mother told them they were buying their first home after years of renting.
“Homeownership is an essential part of the American Dream,” said Harris. “A home is more than a house. It is community. A home represents financial security and the opportunity to build wealth and equity that can help put your child through college and create intergenerational wealth within your family. That’s what all of this represents.”
The mortgage insurance premium is the monthly fee that homeowners with FHA-insured mortgages pay to insure their mortgages, which they pay on top of their monthly principal and interest payments. The action will save homebuyers and homeowners with new FHA-insured mortgages an average of $800 per year.
While homeownership is currently the principal source of wealth creation for most American households, due to a nationwide shortfall in the supply of affordable homes and shifting demand for housing during the pandemic, first-time homebuyers have struggled in recent years to achieve homeownership. First-generation homebuyers and first-time homebuyers of color – who are less likely to have sufficient resources for a sizeable down payment due to a longstanding gap in intergenerational wealth transfers – have been particularly affected.
The Biden Administration views the move as an important step in making homeownership more attainable. FHA-insured mortgages, which accounted for 7.5% of home sales in the third quarter of 2022, are targeted at homebuyers who otherwise may not be able to achieve homeownership. This cost-lowering measure will make buying a home more attainable and affordable for more low- and middle-income borrowers.
The average home purchased with FHA-insured mortgages cost around half the price of the overall national median home and have an average mortgage amount of less than $270,000.
In addition to the changes announced today, the Administration and HUD have taken a range of steps to make homeownership a reality for more Americans. HUD changed FHA’s underwriting policies to allow lenders to use positive rental history in evaluating applicants’ creditworthiness for an FHA-insured mortgage – making it easier for first-time homebuyers to qualify. In addition, HUD expanded access to housing counseling so consumers can seek assistance from more than 1,500 HUD-approved housing counseling agencies and the 4,000 HUD-certified housing counselors.