As we wrap up February, including Black History Month, ICYMI, there was some new legislation released this month that will help to cut costs for Home Buyers using FHA Loans! Read below for more info on what this means, who is impacted the most, and how this ties into the Racial Homeownership Gap.
What are FHA Loans?
FHA loans are Housing loans issued by private lenders but regulated in terms by the Federal Housing Administration (FHA); typically, these loans are used by lower-income individuals, first-time homebuyers, and minorities, who may not have the larger down-payments required with other conventional loans. These loans usually require a down-payment of around 3.5% and lower credit scores are considered more readily.
Usually, however, Private Mortgage Insurance (PMI), which is a fee paid by the buyer to lessen the lender’s risk, is mandatory until a certain percentage of the cost of the home has been received. Essentially, you’re paying for that lack of down-payment while you’re paying the mortgage payments as well.
ICYMI, What’s New in FHA Home Lending:
The Biden Administration announced that beginning March 20, 2023 they will reduce the annual PMI rate on new FHA home loans. The PMI rate will be lowered, thus this action is estimated to save homeowners about $800 this year, depending on where you live. The savings will be in line with what the house costs, which changes dramatically across the US.
Who Does This Benefit:
This effort will expand access to primarily low and middle-income first time homebuyers. The housing prices of FHA loans are usually half that of conventional loans, which means folks with lower incomes tend to use these loans. More than 80% of FHA loan borrowers are first time home buyers and 25% of those are people of color.
Lenders are Behind This Move:
“This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.”–Mortgage Banker’s Association, President.
Racial Homeownership Gap: What is It and Where Do We Stand:
The gap in homeownership rates when divided by race are still deep with disparities. The latest data shows:
“The benefits from homeownership have not been shared equally. In the second quarter of 2022, the homeownership rate for white households was 75 percent compared to 45 percent for Black households, 48 percent for Hispanic households, and 57 percent for non-Hispanic households of any other race. Like the overall racial wealth gaps, these gaps in homeownership rates have changed little over the last three decades. In fact, the Black-white gap in homeownership rates was the same in 2020 as it was in 1970, just two years after the passage of the Fair Housing Act of 1968, which sought to end racial discrimination in the housing market.”–US Dept of Treasury
This is an important topic, not only because homeownership has been identified as one of the greatest factors of wealth-building in the US, this tool of homeownership affects generational wealth that follows, or lack there-of.
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