Our partner Mission Mortgage is excited 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% 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 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 could help new homebuyers with FHA-backed mortgages save an average of $800 a year and lower housing costs for more than 850,000 Americans, according to the U.S. Department of Housing and Urban Development.
“This change means major savings for so many of our clients,” said Duffy Hanna, president of Howard Hanna Mortgage Services.
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, the FHA requires that all borrowers enroll in FHA mortgage insurance.
As part of their FHA mortgage insurance, borrowers must pay an ongoing premium for their coverage, and that’s where the new savings will roll in. The yearly premium gets divided into borrowers’ monthly mortgage payments, and starting in late March, that rate will drop. This means lower monthly payments.
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% – 0.85% of the loan balance (the most common MIP cost) but beginning on March 20, 2023, new borrowers will pay 0.5% – 0.55% instead.
For example, a borrower in a $265,000 home will save about $800 annually. According to the HUD press release, 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.
At Mission Mortgage, they know that owning a home is one the best ways to build generational wealth, and they celebrate the opportunity to make homeownership more attainable.
To learn more about how to qualify for an FHA loan or to get pre-approved, visit Melissa.Hoover@mymissionloan.com.
