New bill could mean lower FHA mortgage insurance

First-time homebuyers could be in luck — especially if they choose an FHA loan. If a new House bill is passed through the Senate, FHA borrowers could see lower up-front mortgage costs as a result.

The House Financial Services Committee officially passed the Housing Financial Literacy Act last week, and if the bill performs similarly in the Senate, it could be a game-changer for first-time buyers.

The legislation aims to reward first-time homebuyers for taking a HUD-approved housing counseling program. The prize? A 0.25 percent discount on their up-front, mortgage insurance premium.

Currently, borrowers pay 1.75 percent in up-front MIP, or $3,500 on a $200,000 loan. Under the new law, the same borrower would pay just 1.5 percent, or $3000.

According to the 2009 Pre-purchase Counseling Outcome Study conducted by HUD, pre-home purchase counseling programs not only increase a consumer's chance of becoming a homeowner, but they also allow them to better sustain that homeownership. Out of the 573 consumers the study monitored, just one was behind on their mortgage payment 18 months later.

The House bill would leverage this study's lessons, according to Rep. Joyce Beatty (D-Ohio). Beatty, along with Rep. Steve Stivers (R-Ohio), introduced the act.

"Motivating first-time homebuyers to seek vital pre-purchase counseling and equipping them with the much-needed financial skills and tools to make informed financial decisions benefits their families, the surrounding neighborhood and our entire economy," Beatty said.

Still, despite its promise, the bill isn't official just yet. The legislation first needs to be passed by the Senate. If it passes successfully, President Trump will need to sign the bill into law.

This article was originally published by the Mortgage Reports on July 29, 2019.