In early January, President Obama announced that he would lower FHA mortgage insurance premiums to help lower the mortgage payments of future FHA borrowers who are planning on purchasing or refinancing. On Jan. 26, those lower mortgage insurance premiums went into effect.
Most lenders require 20 percent down on the purchase of a house, but the Federal Housing Authority allows borrowers to buy a home with as little as 3.5 percent down. FHA mortgage insurance covers the lender for the difference in case the borrower defaults.
How much did President Obama save borrowers by lowering the premium? For every $100,000 mortgaged a borrower saves $500 per year. This decrease is has been well received by the mortgage and real estate industries and is long overdue.
During the financial crisis, the FHA mortgage insurance premiums where increased to help cover excessive losses due to the high amounts of foreclosures. Now, with the market stabilizing, we should hopefully see even more reductions in the future.