The U.S. Department of Housing & Urban Development (HUD), through the Federal Housing Administration (FHA), has announced a 30-basis-point reduction to the annual mortgage insurance premiums (annual MIP) charged to homebuyers who obtain an FHA-insured mortgage.
The MIP will be reduced from 0.85% to 0.55% for most homebuyers seeking an FHA-insured mortgage, which could mean an estimated savings of $678 million for American families in aggregate by the end of 2023 alone. The reduction will benefit an estimated 850,000 borrowers over the coming year, saving these families an average of $800 annually.
Speaking at the Mortgage Bankers Association’s Servicing Solutions conference in Orlando on Wednesday, FHA Commissioner Julia Gordon began her speech with some levity.
“The great news is that no longer your first question to me in any forum has to be when are you going to reduce the mortgage insurance premium on FHA mortgages because the answer is, we are doing that today,” she told attendees.
The 30-basis-point annual MIP reduction will apply to almost all Single-Family Title II forward mortgages insured by FHA. Further, the reduction applies to all eligible property types, including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts.
“At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “For many families, the savings will make the difference in their ability to purchase the home of their choice.”
“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season. This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans,” said MBA’s President and CEO Bob Broeksmit at the conference.
There will be no changes to the up-front mortgage insurance premiums at this time, only the up annual premium calculation.
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I would like to know if and when existing FHA homeowners could see some relieve as well. I’m sure that many existing first time homeowners good use some help with and reduction on ours as well. Look forward to hearing some feed back on that question.
I definitely hear what you say, Yolanda! It would be great to see HUD remove the “life of loan” stipulation on the monthly premium for 30 year mortgages, so hopefully that would be coming down the road. There are other options for you to get out of those monthly premiums through refinancing your loan into a conventional loan once your loan to value falls below 80%. Stay in touch with your loan officer to see when it would make sense for you to refinance.
Thanks for your comment!
Will this reduction apply to reverse mortgages that are insured by FHA?
Hello, Wyn! This reduction only applies to Title II forward mortgages at this time.
Thanks!
Why the reduction? Is there now less risk?
Hello, Donald! The reduction was instituted to help offset the increasing costs to buy a home, especially for first time homebuyers. As far as risk goes, it is thought that HUD has enough in the insurance fund to pay out default claims, but of course, it is a balance. If there is an increase in defaults, the fund could get depleted faster than anticipated and will not be replenished as quickly due to the decrease in the annual MIP. Time will tell if this was the right move, but if it helps more people achieve the goal of homeownership, then it should be good. Of course, this is just my opinion!
Thanks for the comment, Donald!
I think this helps the financing portion for a buyer, however, my concern is those sellers receiving multiple bids and still rejecting the FHA loans due to the “appraisal process” and fear that the sellers will still need to do some repairs to get the acceptance. I understand the premise of habitability, however, I believe the FHA buyer would be better served to either give the seller an incentive to selling to a FHA recipient (rebate or such) or allowing the buyer to complete said repairs within a time period (say 30 days) after closing to complete said repairs.
Hello, Jeffrey! I think more eduction is needed for agents to understand that FHA and VA loans are not bad loan products and that telling sellers to reject those offers is doing a disservice to first time homebuyers and service members. There are FHA 203(k) loans that would allow for borrowers to buy a home and get those repairs done in escrow, but they are definitely more complicated! Of course, as with anything, we have to make sure what we are doing doesn’t violate Fair Lending regulations, and offering rebates could be tricky to administer.
Thanks for your comment, Jeffrey!
Angela Moore The upfront MIP payment is, in my opinion, a necessity to reduce, in order to help Buyers with their financial costs.
That up front payment can be tough for first time homebuyers, for sure. If the insurance fund continues to perform well after the recent reduction in the annual premium, hopefully HUD will take a look at reducing that up front premium.
Thanks for your comment, Angela!
When does this take effect for buyers?
Hi, Sandra! This will apply to FHA case numbers assigned on or after March 20th. Thanks for the comment!
but will a whopping 800.00 bucks a home really make a difference with inflation that literally a trip to the grocery store and maybe one bill. what do they expect to resolve with this? or is this purely for optics?