Biden Unveiled Plan to Help Low-Income and First-Time Homebuyers Save on Mortgage Costs

Recently, the Biden Administration unveiled a plan to help low-income and first-time homebuyers save an average of $800 per year on mortgage insurance costs. The plan is an attempt to help make housing more affordable as higher mortgage rates and skyrocketing home prices have pushed homeownership out of reach for many potential buyers. 

The plan allows the Federal Housing Administration to reduce mortgage insurance premiums by .3 percentage points to .55% for FHA-insured mortgages. Mortgage insurance is coverage that homeowners must purchase if they put down less than 20% when buying a home. Once a homeowner has reached 20% equity in their home, they can typically drop mortgage insurance. 

The new program is set to take effect on March 20, 2023 and will help an estimated 850,000 households save an average of $800 in 2023, according to the White House.

Currently, FHA-insured mortgages are most often used by first-time homebuyers because they offer more flexible credit requirements than a standard mortgage. FHA loans account for roughly 7.5% of home sales and are used to help individuals who may not otherwise be eligible for a mortgage to get approved. 

White House statistics show that over 80% of FHA borrowers are first-time homeowners. In addition, over 25% of the homebuyers using FHA loans are people of color. The new program does not have a minimum income level to qualify, however, the program will consider debt levels and credit ratings.

Mortgage rates have gone up dramatically in the last year, hitting 7% last November before dropping to its current rate of 6.62%, according to the Mortgage Bankers Association.

Hopefully, the new program will make homeownership a bit more affordable. As mortgage rates have risen, home sales have fallen for 12 straight months. Home sales are currently down nearly 37% from one year ago, according to data from the National Association of Realtors.