This week marks the beginning of lowered FHA insurance premiums proposed by President Obama. Cut by 50 basis points from 1.35% down to 0.85%, the U.S. Department of Housing and Urban Development projects these lowered insurance costs could save millions of borrowers an average of $900 annually in house payments.
Renee Wiginton, financial advisor with Bankers Lending Center, explains, “HUD mandates these changes to continuously strive to achieve the appropriate balance between meeting the housing need of the borrowers and minimizing the level of risk.”
Wiginton breaks down the monthly insurance savings based on a $400,000 home. “A buyer would save $163.65 a month with the new premiums. With the old MMI (monthly mortgage insurance), the monthly payment would be $441.85. With the reduced premium, it’s only $278.20 a month.”
RealtyTrac laid out the annual savings and affordability by county as well to give us some real numbers for how this affects our particular corner of the world. They included an average yearly savings as well as an affordability score.
The affordability translates to the percent income a median income earner would need to spend to buy a home. According to RealtyTrac, 28% or less is considered affordable. In Southern California counties we can all expect at least an extra $1,000 savings more than the national average. Orange and LA counties on average can expect over $2,000 savings per year.
If you’re considering taking advantage of a low down FHA loan, it’s important to remember that Fannie Mae has brought back low down payment conventional loans that have many of the same benefits as FHA loans.
“I would strongly advise a prospective buyer to seek council with a professional Real Estate Financial Advisor to weigh their options in terms of FHA versus the new Fannie Mae 97% conventional financing” says Wiginton.
Now let’s break it down by county to see how much you will actually save annually with lowered FHA insurance premiums in SoCal.
Orange County
Annual Savings: $2,774.4
It is projected that Orange County residents will save an average of $2,774.4 annually with these new FHA premiums. Affordability throughout Orange County is still an issue, RealtyTrac projects it will still cost the average homeowner 59.05% of their income.
There is hope however that this affordability will get even better in 2015. Based on our SoCal real estate predictions, we project home prices will remain stable which should give wages a chance to play catch up.
LA County
Annual Savings: $2,219.5
Los Angeles County annual savings are lower than Orange County, averaging $2,219.5 in annual savings. Affordability also isn’t as forgiving as Orange County, residents will have to spend 64.32% of their income to buy a median priced home.
Inland Empire
Annual Riverside County Savings: $1,278.6
Annual San Bernardino County Savings: $1,104.9
Riverside County projects an annual savings of $1,278.6 and San Bernardino comes in just behind at $1,104.9. San Bernardino however promises greater affordability, measuring 33.48% according to the report. Riverside affordability after the reforms will be 37.47%.
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