The federal government will reduce mortgage insurance payments for new federally-backed home loans starting next month, in accordance with an announcement made Wednesday by Vice President Kamala Harris.

What You Need To Know

  • Amid an ongoing housing affordability crisis, the federal government will reduce Federal Housing Administration-backed mortgage insurance premiums by 0.3% — a drop expected to save homeowners an average of $800 a year.

  • FHA loans generally require lower minimum credit scores and down payments than other loans; according to the White House, more than 80% of FHA borrowers are first-time buyers and more than 25% are homebuyers of color

  • Median housing prices spiked in the early stages of the COVID pandemic, as housing stock cratered; however, as housing inventory recovered, home prices continued climbing

  • Decreased homeownership rates are seen particularly among Millennials and families of color, especially Black families

“We do this work because we know that when we lower costs for working people, when working people can buy a home, when working people can thrive, our nation thrives,” said Harris, speaking from Maryland’s Bowie State University.

Effective for mortgages endorsed for insurance by the Federal Housing Administration by March 20, annual mortgage insurance premiums will be reduced from 0.85% to 0.55%. The government estimates that reduction will save $678 million for families across the country — an average of $800 per household — by year’s end.

FHA loans are loans from private lenders that are regulated and insured by the federal government that generally help new homeowners. FHA loans generally require lower minimum credit scores and down payments than other loans. According to the White House, more than 80% of FHA borrowers are first-time buyers and more than 25% are homebuyers of color.

“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership,” HUD Secretary Marcia Fudge said in a statement. “Today, we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future.”

The move to reduce mortgage insurance payments comes amid a critical housing shortage that, like so many things, has been exacerbated amid the COVID-19 pandemic. Median housing prices have spiked from $322,600 in the second quarter of 2020 to $467,700 by the fourth quarter of 2022, according to the Federal Reserve Bank of St. Louis, as housing supply cratered early in the pandemic. While housing supply has recovered, home prices have risen unabated.

A 2021 report by the Urban Institue found that homeownership rates have been significantly lower among Millennials (the generation of those born between 1981 and 1996) and families of color.

According to a trend report by the Apartment List, an online rental marketplace, nearly one-in-four Millennials have given up hope on ever purchasing a home, with a majority of those surveyed citing a lack of affordability as their primary issue.

Meanwhile, the gap between homeownership between white and Black Americans has widened. Black homeownership fell in 2019 to 40.6%, down from 49.7% in 2004, according to the Pew Charitable Trusts — a gap wider than in 1960, when housing discrimination was legal.

Part of the problem, Pew suggests, is investor-purchased housing stock — in 2021, investors bought 24% of all single-family homes sold in America, and more than 30% of all homes sold in Georgia, Arizona, Nevada and California.

Homeownership, Harris said, is about more than just owning a house, but about putting down stakes in a community — and about creating an investment for your family.

“A home represents financial security: the opportunity to build wealth and equity that can help put your child through college, afford retirement, create intergenerational wealth within your family,” Harris said. “That's what all this represents. It is so much bigger than a piece of property.”