On February 22, the U.S. Department of Housing and Urban Development (HUD) revealed a reduction in annual mortgage insurance premiums (MIPs) for specific home loans. This move is set to save FHA loan borrowers an average of $800 annually.
Numerous lenders promptly embraced this change, recognizing its potential to streamline operations and enhance customer experience. Accordingly, current homeowners seeking to refinance their FHA loan and prospective home buyers eyeing an FHA loan can promptly benefit from this favorable update.
What Does MIP Stand For?
MIP, or mortgage insurance premium, is mandatory for all FHA loans, irrespective of the down payment, allowing for more flexible qualification criteria, such as a lower credit score.
There are two components to MIP: an upfront payment due at closing and an annual fee, which is spread out in monthly installments within your mortgage payment. The FHA is lowering the annual MIP cost, not the upfront payment.
The annual MIP cost varies based on the borrower’s loan-to-value ratio (LTV), loan amount, and mortgage term length. Depending on the down payment, a borrower may pay MIP for 11 years or for the entire loan duration. This reduction can potentially save borrowers tens of thousands of dollars in total.
How much can I save?
The Mortgage Insurance Premium (MIP) cost is a percentage of your loan balance. Recently, the FHA announced a 30 basis points (BPS) reduction in MIP, equivalent to a 0.3% decrease in your loan balance. This adjustment means that if you were previously paying between 0.8% to 0.85% of your loan balance for MIP (a common cost range), your new payment would fall within the range of 0.5% to 0.55%.
To put this change into perspective, let’s consider the savings for homeowners. For instance, a borrower with a $265,000 home could expect to save approximately $800 annually. Similarly, a homeowner with a $467,700 property, which was the national median home price in December 2022 according to HUD, would save over $1,400 per year due to this adjustment.
What is the reason behind the cost reduction efforts?
As per the recent HUD press release, the Biden administration is dedicated to enhancing the affordability and accessibility of homeownership for families nationwide. This announcement further extends the Department of Housing and Urban Development’s efforts to make homeownership a tangible goal for more Americans.
By lowering the cost of such loans, a greater number of individuals may realize their dream of owning a home. This is particularly beneficial for low-income and first-time home buyers, who typically gain the most from FHA loans. The adjustment comes as a relief for Americans who have faced escalating home prices, housing expenses, and mortgage rates in the past year.
Who will be impacted by this change?
Current homeowners with FHA loans seeking to refinance and future home buyers utilizing FHA loans are impacted by this adjustment. The reduction applies to FHA-insured mortgages for single-family homes, condos, and manufactured homes. To benefit from this decrease, current FHA borrowers must refinance their existing loan.
Where can I find additional information?
Elevation Mortgage Home Loan Experts are here to assist you, whether you’re a current homeowner or in the market for a home with an FHA loan. They’re available to address your queries and guide you on the next steps. Reach out to us at 719.247.6622. If you’re contemplating an FHA loan for a home purchase and are ready to benefit from this reduction, kick off your application online.
For further information, you can access the complete announcement from the White House. Vice President Kamala Harris, alongside HUD Secretary Marcia Fudge, presented remarks on this announcement at Bowie State University in Maryland, in addition to a press release.
Reed Letson
Reed offers two decades of expertise as a mortgage broker, focusing on veterans and first-time home buyers. With a strong grasp of real estate and mortgage markets, he empowers clients with practical insights. Reed's passion is guiding clients to build wealth through real estate investments and financing solutions.