FHA Announces Lower Mortgage Insurance Premiums For FHA Loans
Lauren Nowacki2-minute read
February 23, 2023
On February 22, the U.S. Department of Housing and Urban Development (HUD) announced that it will be reducing annual mortgage insurance premiums (MIPs) for certain home loans, saving FHA loan borrowers an average of $800 per year.
Soon after the announcement, Rocket Mortgage® implemented this change, one of the first to do so in the industry. That means current homeowners looking to refinance their FHA loan and current home buyers considering an FHA loan can benefit from this reduction today.
What Is MIP?
MIP, short for mortgage insurance premium, is required on all FHA loans (regardless of down payment) to allow for more flexible qualification requirements, like a lower credit score.
There is an upfront MIP, which is paid at closing and an annual MIP, which is paid yearly and broken up into monthly payments as part of your mortgage payment. The FHA is reducing the cost of the annual MIP, not upfront.
The cost of an annual MIP depends on each borrower’s loan-to-value ratio (LTV), loan amount and length of their mortgage term. Depending on their down payment amount, a borrower may pay MIP for 11 years or throughout the life of the loan – meaning this reduction can save borrowers upward of tens of thousands of dollars in total.
How Much Will I Save?
The cost of an MIP is a percentage of your loan balance. The FHA is lowering MIP by 30 basis points (BPS) which is a reduction of 0.3% of your loan balance. That means, if you were paying 0.8% - 0.85% of your loan balance (the most common MIP cost), you’ll now pay 0.5% - 0.55% instead.
To show the monetary value of this change a borrower in a $265,000 home would save about $800 per year. A borrower with a $467,700 home – the national median home price in December 2022 – would save more than $1,400, according to the HUD press release.
Why Are They Reducing Costs?
Per the HUD press release, the Biden administration is committed to improving affordability and accessibility to homeownership for families across the country. This announcement “builds on a range of steps the Department of Housing and Urban Development has taken to make homeownership a reality for more Americans,” it says.
By reducing the cost of this type of loan, more people may be able to afford owning a home. This is especially true for low-income and first-time home buyers, who tend to benefit from FHA loans the most. This change is a welcome reprieve for Americans who, in the last year, have experienced higher home prices, housing costs and mortgage rates.
Who Is Affected By This Change?
Those affected by this change are current homeowners who are FHA borrowers looking to refinance their FHA loan and current and future home buyers who wish to purchase a home using an FHA loan. The reduction is for FHA-insured mortgages on single-family homes, condominiums and manufactured homes.
It is important to note that in order for current FHA borrowers who own a home to benefit from this reduction, they must refinance their FHA loan.
Where Can I Get More Information?
Rocket Mortgage Home Loan Experts are here to help. Whether you’re a current homeowner or looking to purchase a home with an FHA loan, they can answer questions and help you determine next steps. Call us at (833) 326-6018. If you’re considering using an FHA loan to purchase a home and are ready to take advantage of this reduction, you can start your application online. Rocket Mortgage is one of the first lenders to roll this out just after the announcement.
For more details, you can also read the full announcement from the White House. Along with a press release, Vice President Kamala Harris joined HUD secretary Marcia Fudge to deliver remarks on this announcement at Bowie State University in Maryland.
Viewing 1 - 3 of 3
FHA Mortgage Insurance Removal: A How-To Guide
Andrew Dehan - March 03, 2023
All FHA loans require a mortgage insurance premium (MIP), no matter what your down payment is. Find out if you qualify for FHA mortgage insurance removal here.
What Is An FHA Mortgage Insurance Premium?
Home Buying - 8-minute read
Victoria Araj - March 06, 2023
Are you applying for an FHA loan? Read on to learn about the FHA mortgage insurance premium (MIP) you’ll need to pay in addition to your mortgage payment.