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Mortgage insurance costs dropping for some new homebuyers. Here’s how much you could save.

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Fees associated with Federal Housing Administration-insured mortgages are set to see a major price cut.

The FHA is set to reduce the annual mortgage insurance premium – the monthly fee to insure the mortgage – from 0.85% to 0.55% for most new borrowers seeking a mortgage insured by the agency.

The drop is expected to affect 850,000 borrowers this year and save homeowners $800 per year on average, according to the White House.

“FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said in a news release.

Who’s affected?

FHA-insured mortgages, which are meant for buyers who may not otherwise be able to afford a home, accounted for 7.5% of home sales in the third quarter of last year. More than 80% of FHA borrowers are first-time buyers, and over a quarter are people of color, according to a fact sheet from the White House.

The average home purchased with FHA-insured mortgages costs about half the price of the national median home price, and their average mortgage is less than $270,000, according to the White House.

Why do borrowers pay mortgage insurance?

The revenue FHA receives from the mortgage insurance premium offsets the mortgage insurance claims it pays to lenders, allowing the program to operate without government subsidy, according to the Department of Housing and Urban Development (HUD).

“FHA mortgage insurance facilitates broader availability of mortgage financing for low-and moderate-income households by reimbursing lenders for losses when a loan defaults,” reads a Wednesday news release from HUD.

What is the current state of the housing market in the US?

The announcement comes as home sales are starting to bottom out, with existing-home sales down for the twelfth straight month in January. While still low, housing inventory has started to climb, potentially allowing more buyers to call the shots this year.

The median existing-home price in January was $359,000, up 1.3% from the year prior.

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How much can homebuyers save?

The move is expected to sauce American families $678 million by the end of the year.

“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,” HUD Secretary Marcia Fudge said in a press release.

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You can follow USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday.

This article originally appeared on USA TODAY: New homeowners seeking this mortgage could be saving big



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