by Anthony Kellum
I am pleased to share the news about an exciting decrease in mortgage insurance premiums. Starting on March 20, 2023, the Federal Housing Authority (FHA) will reduce annual mortgage insurance premiums by 0.3 percentage points from 0.85 percent to 0.55 percent for most new borrowers.
Mortgage insurance premium (MIP) payments are required on all FHA loans, regardless of down payment, to allow for more flexible qualification requirements, like a lower credit score. There are two types of MIP: an upfront MIP, paid at closing, and an ongoing MIP paid monthly as part of your mortgage payment. The monthly MIP adjusts down annually based on your remaining principal balance. the FHA is reducing the cost of the annual MIP. Reducing the MIP rates will help new homebuyers with FHA-backed mortgages save an average of $800 a year and lower bousing costs for more than 900,000 Americans, according to the U.S. Department of Housing and Urban Development.
Whom will this affect?
The MIP rate change will impact new borrowers who apply for FHA loans. These loans are backed by the federal government, designed to help low- to moderate-income families purchase a home, and are especially popular among first -time buyers. FHA loans have a lower down payment requirement, allowing individuals with lower credit scores to secure a home loan. Because of this, the government takes on greater risk with FHA borrowers. To cover this risk, FHA requires that all borrowers enroll in FHA mortgage insurance.
How much will homebuyers save?
It depends on the price of the home, as the cost of ongoing MIP is a percentage of the loan balance. Currently, borrowers pay 0.8 percent-0.85 percent of the loan balance (the most common MIP cost) buy beginning on March 20, 2023, new borrowers will pay 0.5 percent-0.55 percent instead. For example, a borrower in a $265,000 home will save about $800 annually. According to HUD, a borrower with a $467,700 home, the national median home price in December 2022, will save more than $1,400 annually.
What’s the big picture?
Lower mortgage insurance premiums will help expand homeownership opportunities for thousands of families across the United States. During the pandemic, home prices and mortgage rates skyrocketed, making it difficult for many low- and medium-income borrowers to purchase a home. According to the White House, first-generation homebuyers and first-time buyers of color were particularly affected by pandemic-era price increases. The newly announced MIP rate decrease will help remove some barriers to owning a home. Owning a home is one of the best ways to build generational wealth, and I celebrate the opportunity to make homeownership more attainable.
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