Home > 2015 > Mortgages

The FHA Just Cut a Major Expense for New Homebuyers

Advertiser Disclosure Comments 1 Comment

The government announced Thursday that first-time homebuyers taking out low-down-payment mortgages insured by the Federal Housing Administration would not have to pay as much in private mortgage insurance. This change is expected to save more than 2 million FHA homeowners about $900 a year and allow about 250,000 consumers to buy their first homes in the next three years, according to a news release from the U.S. Department of Housing and Urban Development.

Hundreds of dollars in savings makes a big difference in the finances for first-time homebuyers who couldn’t afford to make a 20% down payment. It comes in the form of lower private mortgage insurance (PMI) premiums, which are required by lenders of low-down-payment mortgages. Before the housing market collapsed several years ago, PMI cost 0.55% of the loan balance, but the housing crisis seriously stretched thin FHA’s resources — insuring lenders against loan defaults, which had skyrocketed — and higher PMI premiums were a result.

Before today’s announcement, PMI included an annual premium of 1.35% of the loan balance. When the changes take effect near the end of the month, as HUD estimates, that premium will drop to 0.85%. FHA borrowers will still be required to pay an upfront fee for PMI, as well as pay PMI throughout the life of the loan, though there are ways to get rid of it.

FHA loans increase access to homeownership, which is why the loans and PMI rules are so important. At the same time, many borrowers don’t realize how much PMI costs. In a May 2014 survey, TD Bank found that 65% of homeowners ended up dealing with higher monthly mortgage payments than they anticipated because of the added cost of PMI. If you don’t see it coming, PMI can be a huge burden for homeowners who are already generally less wealthy than the average homeowner.

As significant as this change is in making homeownership more accessible, you still need to have a good understanding of how your down payment and financial standing will affect whether or not you can get a mortgage for the home you want. That’s easy to figure out — with this free calculator, you can figure out how much house you can afford, based on your anticipated down payment and existing debt. It’s a great way to get started on your way to the dream of owning your first home.

Your credit score will also have a major impact on your ability to qualify for a home loan and how much your monthly payment will be. You can check your credit scores for free on Credit.com.

More on Mortgages & Homebuying:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • David Mead

    I just got rid of my $103 a month PMI payment. I had to have 22% of the original price of the home paid off before the bank would drop the PMI. It took 5 years to get rid of that PMI so I had paid out $6,000.

    Under the new rules you have to pay PMI for the life of the loan so on a 30 year loan that’s $37,000 extra.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team