In an effort to make homeownership more affordable, the US Department of Housing and Urban Development (HUD) is reducing fees on FHA loans.
Specifically, HUD in conjunction with the Biden-Harris administration Desire Reduce annual mortgage insurance premium (MIP) by 30 basis points.
The move is expected to save the average homeowner about $800, or roughly $67 per month, and even more for those with larger loan amounts.
Collectively, this should translate into savings of an estimated $600 million in the next year alone, and “several billions over the next decade.”
The new price applies to forward mortgages backed on or after March 20, 2023.
FHA annual mortgage insurance premium drops to 0.55% for most home loans
FHA MIP Reduction announced Today marks the first correction in pricing in nearly eight years.
It lowers the annual insurance cost on most FHA loan From 0.85% to 0.55%.
I say most because this pricing applies to loan-to-value (LTV) ratios of 95%+ with mortgage terms of over 15 years.
Many FHA borrowers put down as little as 3.5% and take out a 30-year fixed mortgage, so this is the most common insurance pricing.
On a $450,000 loan, the monthly insurance premium would drop from approximately $319 to $206 per month. That’s a savings of about $113, or $1,356 annually.
This is important enough for borrowers to reconsider The FHA vs. Conventional Loan Argument,
If you’re a potential home buyer, be sure to carefully compare the total payments on both loan types.
While a ~$100 reduction in down payment may neither make nor break a home buying decision, it may affect your loan type decision.
As noted, this change will be effective for forward mortgages backed on or after March 20, 2023.
That means home buyers will be able to take advantage of better pricing on FHA loans this spring.
This should further boost the FHA loan share, which was already rising in recent months.
and widen the gap conforming loan thanks to the new DTI pricing supported by Fannie Mae and Freddie Mac and 780 FICO scoring bucket.
First FHA loan pricing reform since 2015
This is the first time FHA loans have been cheaper since January 2015, when the annual MIP was lowered From 1.35% to 0.85%.
In early 2017, 0.25% cut in MIP was approved but quickly froze by then President Donald Trump.
So this is somewhat of a big deal, considering how long it’s been since we’ve seen a decline in mortgage insurance premiums.
However, in most cases mortgage insurance remains in force for the duration of the loan term, which remains a major negative for FHA loans.
For example, borrowers who put down 3.5% (the flagship FHA down payment) and have a mortgage term of more than 15 years are stuck with the annual MIP for the life of the loan.
that negative change went back into effect June 2013As the housing market was recovering from the Great Recession.
Prior to the change, FHA borrowers could see their premiums drop after their prime LTV ratio dropped to 78%.
New 2023 FHA Annual MIP Chart
This is the new annual MIP chart for FHA loans. In addition to the lower 0.55% MIP for 3.5% down loans, the MIP for borrowers who put 10% or more down will drop to 0.50%.
MIPs are higher for loan amounts above 2023 Corresponding loan limit of $726,200,
depending on LTVAnnual MIPs are either 0.70% or 0.75%, all of which are 0.30% cheaper.
Those who go with a 15-year fixed (not common on FHA loans) will see an FHA MIP as low as 0.15%.
Annual MIP for streamline refinancing Remains unchanged at 0.55%. These transactions were incredibly popular when mortgage rates were low, but are now few and far between.
In short, this is a positive change for FHA loans and could make them cheaper than loans backed by Fannie and Freddie.
And now that on-time rental history back is considered (through September 2022), it may be easier to qualify for an FHA loan.