Since his inauguration, Donald Trump has been busy signing executive orders and attempting to reshape the country to his liking. One of the changes he made, which happened very soon after his swearing-in, will impact those who are in the market for a house, and especially young buyers.
In the last days of his administration, President Obama announced a fee rate cut aimed at homeowners who have FHA (Federal Housing Administration) loans. The cut would have helped homeowners who didn’t have large down payments on their homes and, as such, have to pay mortgage insurance. The fee cut amounted to an average of $450 annually. Trump quickly reversed the fee cut. This makes buying a home more expensive for the typical FHA buyer, many of whom are millennials, and in turn makes it harder for older homeowners to sell their homes.
The Obama rate cut was aimed at homebuyers who have less than twenty percent to put as a down payment on the homes that they are buying. Most of these buyers end up with loans funded through the government’s Department of Housing and Urban Development (HUD), which issues FHA loans. On a median-priced home, this savings would come to around $37 monthly. Of course, in markets where homes are more expensive, the savings would be even more. During the Great Recession, FHA fees were raised to cover losses in the program. Obama’s measure would have rolled the fees back to what they were before the burst of the housing bubble. As it stands, the fees are currently higher than they were before 2008 and the start of the recession.
Buyers who bring less than a 20 percent down payment to the table have to pay for what is called mortgage insurance. This is so that banks are covered if homeowners cannot make their mortgage payments, since they have so little equity in the home. A lot of buyers with mortgage insurance obtain it through the FHA. As per Fox News: “For an upfront fee and an ongoing monthly cost, the FHA will guarantee a loan between a buyer and a bank — that gives banks the ability to lend money to buyers with as little as 3% down.” This program dates back to the 1930s and helps to empower more first-time homebuyers.
The rationale behind Trump eliminating the fee cut was that he felt it was moving homebuyers in the direction of another bailout, the likes of which occurred during the recession.
