Biden Administration Cuts FHA Mortgage Premiums by 33% in 2025, Saving Homebuyers $680M
The Biden administration slashes FHA-insured mortgage premiums to ease borrowing costs amid rising interest rates, aiming to help 850,000 homeowners save an average of $800 each in 2025.
In a strategic move to alleviate the burden of rising borrowing costs, the Biden administration announced a significant reduction in premiums on FHA-insured mortgages by approximately one-third.
Effective March 20, 2024, the Federal Housing Administration (FHA) will lower the annual mortgage insurance premium from 0.85% to 0.55%. This change is projected to save U.S. homeowners a total of $680 million this year, benefiting around 850,000 homebuyers and existing homeowners with average savings of $800 each.
This initiative responds to the Federal Reserve's ongoing interest rate hikes aimed at curbing the highest inflation in four decades, which have doubled the average 30-year fixed mortgage rate from 2.77% in January 2021 to 6.32% in 2024. These increases have significantly impacted borrowing costs and cooled the housing market.
Consequently, the U.S. housing market has experienced a $2.3 trillion decline in value since mid-2023, with home sales dropping for the 12th consecutive month as reported by the National Association of Realtors, marking a 37% decrease compared to January last year.
FHA's Role in Supporting Homebuyers
FHA-backed mortgages now represent just 7.5% of new home sales as of Q3 2023, the lowest since 2007, down from 20% at the pandemic's onset. Notably, over 80% of FHA loans assist first-time buyers purchasing homes priced around half the national median of $467,700, with an average loan amount near $270,000.
The White House emphasized that this premium reduction is a vital step toward making homeownership more accessible, especially for low- and middle-income families. Additionally, recent adjustments to FHA underwriting policies have further eased loan qualification requirements for first-time buyers.
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