As early as the fall of 2014, the Federal Housing Administration (FHA) could give home buyers a break on mortgage insurance premiums through the Homeowners Armed with Knowledge, or HAWK, lending program.

The program will reduce upfront and monthly FHA mortgage insurance premiums for first-time home buyers who complete housing counseling, says Shaun Donovan, Secretary of Housing and Urban Development (HUD), the organization that oversees the FHA home loan program.

Buyers could receive an additional discount if they make all their payments on time for the first two years.

These reductions would come as a welcome change to FHA lending, considering FHA’s current trend of raising premiums. Rates have increased four times since 2010. The upfront MIP has gone from 1.0% to 1.75% since 2010 – a 75% increase. Additionally, the annual insurance premium has gone from .90% of the loan amount in 2010 to 1.35% today. On a $250,000 mortgage, a homebuyer would pay $1,875 more upfront and $1,125 extra per year than he or she would have in 2010.

FHA HAWK Program Mortgage Insurance Premium Reductions

So how much will the currently-steep FHA fees be reduced? According to Donovan, the upfront premium will drop by 50 basis points, or in other words, by one-half a percent. The annual premium will go down 10 basis points, or one-tenth of one percent.

So HAWK program participants will pay an upfront fee of 1.25% (rather than 1.75%) and an annual fee of 1.25% (down from 1.35%). For HAWK Program borrowers who put more than 5%, the upfront fee will drop from 1.30% to 1.20%.

Homeowners Armed with Knowledge candidates will save nearly 30% on upfront premiums and 7% on monthly FHA mortgage insurance premiums (MIP).

HAWK Program MIP Savings Examples in Real Dollars

In real dollars, the MIP savings are significant. Here’s what a home buyer could save with the Homeowners Armed with Knowledge program:

Homeowners Armed with Knowledge Program Could Mean More Loan Approvals

While the savings are significant, they aren’t earth-shattering. But every little bit helps for many FHA borrowers. Often, the reason new home buyers opt for FHA is that they can’t qualify for other loan types due to lower income, damaged credit, or lack of cash on hand.

Many of these first time buyers are on the line and just need a little push to change their loan status from “denied” to “approved.”

I’ve seen time and time again a small positive factor that pushes a borrower over a threshold. Suddenly, he or she is able to buy a home. A slightly lower monthly payment as a result of the HAWK program could be the gust of wind that pushes many borrowers over the finish line.

HAWK Homeowner Counseling

There are no details yet on the difficulty of the counseling or how time intensive it will be. However, I could make an educated guess that it will be fairly easy for the average homeowner to complete. Other types of loans I’ve worked on require counseling, such as reverse mortgage and FHA loans for borrowers with marginal credit. Typically the borrower spends a few hours online or over the phone with a housing counselor, and the requirement is complete.

And, homeownership counseling is usually free to the loan applicant.

There should be very few hurdles to obtaining the counseling. And because the homeowner will save thousands over the life of the loan, there’s no reason not to participate the moment the program becomes available.

Stay Updated on the FHA HAWK Program

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