The FHA Just Cut a Major Expense for New Homebuyers

What's Hot

23 Upgrades Under $50 to Make Your House Look AwesomeAround The House

Trump Worth $10 Billion Less Than If He’d Simply Invested in Index FundsBusiness

Do This or Your iPhone Bill May SkyrocketSave

11 Places in the World Where You Can Afford to Retire in StyleMore

19 Moves That Will Help You Retire Early and in StyleFamily

What You Need to Know for 2017 Obamacare EnrollmentFamily

8 Things Rich People Buy That Make Them Look DumbAround The House

50 Ways to Make a Fast $50 (or Lots More)Grow

32 of the Highest-Paid American SpeakersMake

The 35 Two-Year Colleges That Produce the Highest EarnersCollege

5 DIY Ways to Make Your Car Smell GreatCars

Amazon Prime No Longer Pledges Free 2-Day Shipping on All ItemsMore

More Caffeine Means Less Dementia for WomenFamily

7 Household Hacks That Save You CashAround The House

5 Reasons a Roth IRA Should Be Part of Your Retirement PlanGrow

30 Awesome Things to Do in RetirementCollege

Beware These 10 Retail Sales Tricks That Get You to Spend MoreMore

Lower rates are coming to private mortgage insurance for first-time homebuyers.

This post comes from Christine DiGangi at partner site

The government announced last week that first-time homebuyers taking out low down payment mortgages insured by the Federal Housing Administration will 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 an additional 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 percent 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 percent of the loan balance, but the housing crisis seriously stretched thin FHA’s resources. The FHA insures lenders against loan defaults, which had skyrocketed, and higher PMI premiums were a result.

PMI now includes an annual premium of 1.35 percent of the loan balance. When the changes take effect near the end of the month, that premium will drop to 0.85 percent. 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.

A huge burden

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 percent of homeowners ended up with higher monthly mortgage payments than they had anticipated because of the added cost of PMI.

If they 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 a good understanding of how your down payment and financial standing will affect whether 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 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

More on

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: What to Expect for Stocks, Housing and Oil Prices in 2015

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,728 more deals!