850,000 homebuyers and homeowners with new FHA-insured mortgages expected to benefit in 2023
Today, the Biden-Harris Administration announced an action that will save homebuyers and homeowners with new FHA-insured mortgages an average of $800 per year, lowering housing costs for an estimated 850,000 homebuyers and homeowners in 2023.
Vice President Harris and Department of Housing and Urban Development (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 on top of their monthly principal and interest payments.
Homeownership is currently the principal source of wealth creation for most American households. But 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.
Today’s announcement is 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.
FHA insures loans with a small down payment and more flexible underwriting, enabling families to begin building wealth through homeownership earlier than they otherwise might and providing an open door to credit-worthy 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 cost around half the price of the overall national median home and have an average mortgage amount of less than $270,000.
By lowering its annual mortgage insurance premium by 0.30 percentage points, FHA’s action will help new homebuyers all over the country achieve homeownership. For example, the average homebuyer in Prince George’s County – where Vice President Harris and Secretary Fudge are traveling today – will save nearly $900 per year, based on the average home price in the county of around $300,000. In addition:
- A family buying a home in Detroit with a $200,000 mortgage will save $600 per year
- A family buying home in Cincinnati with a $300,000 mortgage will save $900 per year
- A family buying a home in Phoenix with a $400,000 mortgage will save $1,200 per year
- A family buying a home in Austin with a $500,000 mortgage will save $1,500 per year
Over the last several years, 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, home price appreciation, and significant refinance volume which together have led to an accumulation of substantial reserves. These dynamics make it possible for HUD to calibrate premiums more appropriately to the performance of the loans FHA insures and pass savings on to consumers in a responsible manner and without jeopardizing the long-term sustainability of FHA’s mortgage insurance fund. The premium reduction will take effect on March 20, and will be reflected in the President’s FY 2024 Budget.
The Biden-Harris Administration’s Commitment to Housing Stability and Affordability
Today’s announcement follows a range of actions the Biden-Harris Administration has taken to promote housing stability and affordability. In part due to policies the Administration has put in place, 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 is helping struggling homeowners catch up on their mortgage payments and utility costs. The Administration also stood up a first-of-its-kind national eviction prevention infrastructure, providing 8 million payments to households in danger of eviction.
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. HUD changed the way in which student loan debt is evaluated in FHA mortgage underwriting, enabling more borrowers making payments on student loans to qualify for an FHA-insured mortgage. And last year the Property Appraisal and Valuation Equity Task Force (PAVE) announced more than 20 concrete agency actions to root out racial and ethnic bias in home valuations, including strengthening guardrails against unlawful discrimination in all stages of residential valuation, empowering consumers to take action, and building a well-trained, accessible, and diverse appraiser workforce.
The President has also taken substantial steps to increase affordability for renters and homeowners by increasing the overall supply of housing. Last May, the Administration released a Housing Supply Action Plan, which set the goal of closing America’s housing supply shortfall in five years. For example, the Supply Action Plan calls on Congress to pass the Neighborhood Homes Investment Act, which would boost the supply of single-family homes available for sale to low- and middle-income families in communities throughout the country.
The Administration has also secured rental assistance for more than 100,000 additional households through FY22 and FY23 appropriations and the American Rescue Plan. And in January, the Administration proposed an Affirmatively Furthering Fair Housing rule and announced new actions to increase fairness in the rental market through its Blueprint for a Renters Bill of Rights, which lays out principles and actions to drive federal, state, local, and private sector action to strengthen tenant protections and encourage rental affordability.