The Federal Housing Administration cut annual premium costs earlier this year in order to help borrowers save. This cut of half a percentage point leads to a savings of about $900 on average for borrowers annually. However as rates came down on federally insured mortgages, most people have not been pocketing this money and saving it, but instead using it to purchase more expensive homes, a new study suggests.
Edward Pinto, a housing expert with the American Enterprise Institute, a think tank in Washington, D.C., said that his research shows that borrowers have used premium-cut savings to buy pricier homes. Pinto says the median price for FHA-insured homes purchased by first-time buyers who paid the lower premium increased more than the price for homes purchased with other government-backed mortgages.
FHA mortgages also compromise a greater share of purchases of new single family homes as opposed to used, existing homes. New single family homes are usually pricier than used ones, again showing how these FHA price cuts has led to higher priced sales.
“This is a modest, carefully calibrated action that strikes the proper balance between increasing access to credit and maintaining fiscal prudence,” Julia Gordon, director for housing and consumer finance at the Center for American Progress, recently told a panel of U.S. lawmakers in support of FHA’s recent premium cut. “The recent recalibration of the premium will help ensure that FHA continues to be available to the underserved borrowers that most need it.”
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