HUD Announces Reduction in Mortgage Insurance Premiums for FHA Borrowers

Recently, HUD released details of a long-anticipated plan. HUD announces reduction in mortgage insurance premiums for FHA borrowers. Currently, FHA borrowers are charged by 30 basis points (0.3% of the loan balance). Excitingly, this could benefit up to 850,000 borrowers over the coming year. Also, this would save these families an average of $800 annually. The premium will be reduced from 0.85 percent to 0.55 percent for most FHA borrowers. In this blog post, we will discuss the details of this announcement and what it means for FHA borrowers.

What is the MIP?

So, what is MIP? The mortgage insurance premium (MIP) is a fee that the Federal Housing Administration (FHA) charges borrowers who take out FHA-insured loans. On a positive note, MIP protects the lender in case the borrower defaults on the loan. The borrower pays MIP monthly lumped in with their mortgage payment.

Reduction in MIP

According to the HUD release, the 30 basis point annual MIP reduction will apply to almost all Single Family Title II forward mortgages insured by FHA. All elible properties with receive this benefit. This includes single-family homes, condominiums, and manufactured homes.

Consequently, FHA borrowers stand to receive significant savings from this reduction in MIP. For example, the average FHA borrower purchasing a one-unit single-family home with a $265,000 mortgage will save approximately $800. Moreover, the national median home price as of December 2022 was$467,700. FHA’s annual MIP reduction will save a borrower with that mortgage more than $1,400 in the first year. Additionally, the reduction can also help more people qualify for a mortgage. Because the reduction in the overall cost of homeownership, potential buyers may be able to qualify for a mortgage with less income.

Impact on Homeownership

Next, reducing the cost of homeownership is an undeniably essential step towards increasing homeownership rates in the United States. In fact, low and moderate-income households are most effected by this change. As HUD Secretary Marcia Fudge notes, “we continue our work to address longstanding disparities in homeownership.” This reduction in MIP will make homeownership more affordable and accessible for many households. Most importantly, those struggling to make ends meet may be closer to making home ownership a reality.

Effective Date

The annual mortgage insurance premium reductions will be effective for mortgages endorsed for insurance by FHA on or after March 20, 2023. This means that borrowers who have already closed on their FHA-insured loans will not be eligible for the MIP reduction.

Conclusion

Finally, the reduction in the annual mortgage insurance premium by HUD is a significant development. The benefits can reach up to 850,000 FHA borrowers over the coming year. This reduction in MIP can result in significant savings for borrowers.  It can also make homeownership more accessible and affordable for many households. As the Secretary of HUD notes, this reduction in MIP is an essential step towards reducing longstanding disparities in homeownership.