---
title: The FHA Just Cut a Major Expense for New Homebuyers
description: The Federal Housing Administration is lowering private mortgage insurance (PMI) premiums for low-down payment mortgages.
---

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# [The FHA Just Cut a Major Expense for New Homebuyers](https://credit.com/blog/the-fha-just-cut-a-major-expense-for-new-homebuyers-105586)

 Written by [Christine DiGangi](https://credit.com/blog/author/christine-digangi) | Jan 9, 2015 5:01:35 AM

The government announced Thursday that first-time homebuyers taking out [low-down-payment mortgages](http://blog.credit.com/2014/12/how-to-keep-a-low-down-payment-mortgage-affordable-103024/) 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](http://www.credit.com/loans/mortgage-questions/mortgage-glossary/) (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](http://blog.credit.com/2014/12/how-to-keep-a-low-down-payment-mortgage-affordable-103024/).

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](http://www.credit.com/loans/mortgage-questions/check-your-credit-score-report-before-buying-home/) 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](http://www.credit.com/tools/how-much-house-can-you-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.](https://www.credit.com/free-credit-score/)

### More on Mortgages & Homebuying:

- [Why You Should Check Your Credit Before Buying a Home](http://www.credit.com/loans/mortgage-questions/check-your-credit-score-report-before-buying-home/)
- [How to Get Pre-Approved for a Mortgage](http://www.credit.com/loans/mortgage-questions/how-to-get-pre-approved-for-mortgage-home-loan/)
- [How to Get a Loan Fully Approved](http://www.credit.com/loans/mortgage-questions/how-to-get-loan-fully-approved-the-mortgage-approval-process/)

*Image: iStock*

[View full post](https://credit.com/blog/the-fha-just-cut-a-major-expense-for-new-homebuyers-105586)

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