Howard Hanna Mortgage Services is pleased to bring you the news of an exciting drop in mortgage insurance premiums. Beginning March 20, 2023, the Federal Housing Authority (FHA) will reduce annual mortgage insurance premiums by 0.3 percentage points from 0.85% to 0.55% for most new borrowers.
Mortgage insurance premium (MIP) payments are required on all FHA loans, regardless of down payment, to allow for more flexible qualifying requirements such as lower credit scores. There are two types of MIP: an upfront MIP, which is paid at closing, and an ongoing MIP, which is paid monthly as part of your mortgage payment. The monthly MIP is adjusted downwards annually based on your remaining principal balance. The FHA reduces the cost of the annual MIP.
Reducing MIP rates could help new homebuyers with FHA-backed mortgages save an average of $800 a year and reduce housing costs for more than 850,000 Americans, according to the US Department of Housing and Urban Development.
“This change represents great savings for so many of our customers,” said Duffy Hanna, President of Howard Hanna Mortgage Services.
Who will this affect?
The MIP rate change will impact new borrowers applying for FHA loans. These loans are backed by the federal government to help low- to middle-income families buy a home and are especially popular with first-time buyers.
FHA loans have a lower down payment requirement, allowing those with lower credit ratings to obtain a home loan. Because of this, the government takes on more risk with FHA borrowers. To cover this risk, the FHA requires all borrowers to have FHA mortgage insurance.
As part of their FHA mortgage insurance, borrowers must pay an ongoing premium for their coverage, and this is where the new savings come in. The annual premium will be divided into borrowers’ monthly mortgage payments, and from the end of March this rate will decrease. This means lower monthly payments.
How much do homebuyers save?
This depends on the price of the home since the cost of the ongoing MIP is a percentage of the loan balance. Currently, borrowers are paying 0.8% – 0.85% of the loan balance (the most common MIP cost), but as of March 20, 2023, new borrowers are paying 0.5% – 0.55% instead.
For example, a borrower in a $265,000 home saves about $800 annually. According to the HUD press release, a borrower with a home valued at $467,700, the national average home price in December 2022, will save more than $1,400 annually.
What is the big picture
Lower mortgage insurance premiums will help expand homeownership opportunities for thousands of families in the United States. During the pandemic, home prices and mortgage rates have skyrocketed, making it difficult for many low- and middle-income borrowers to buy a home.
According to the White House, first-generation homebuyers and first-time paint buyers have been particularly hard hit by price hikes during the pandemic.
The newly announced reduction in the MIP rate will help remove some barriers to home ownership.
At Howard Hanna Mortgage Services, we know that owning a home is one of the best ways to build generational wealth and we celebrate the opportunity to make home ownership more attainable.
To learn more about qualifying for an FHA loan or obtaining preapproval, visit howardhannamortgage.com.
