FHA mortgages have long provided first-time homebuyers and those with less-than-stellar credit an affordable way to achieve home ownership. But one of the main drawbacks of these mortgages has been that their mortgage insurance costs are relatively high.
Reduced mortgage insurance rates go into effect today for many FHA borrowers. The typical borrower will pay 0.55% of their loan amount annually in mortgage insurance costs (as opposed to the .85% rate previously) – a decrease of 30%!
The White House announced Wednesday that the US Department of Housing and Urban Development (HUD) will lower annual mortgage insurance premiums (MIP) on FHA mortgages. These loans are insured by HUD’s Federal Housing Administration.
Mortgage insurance is required on all FHA loans (regardless of down payment size) to allow for more flexible qualification requirements, like a lower credit score.
FHA mortgages are used for primary residences, not 2nd homes or investment properties.
Overview of the Changes
Mortgage insurance is paid as a percentage of the borrower’s loan amount, and how much an individual pays depends on how much they borrowed, their down payment, and the loan term. Currently, most borrowers pay an annual mortgage insurance rate of 0.85%.
To show the monetary value of this change, a borrower in a $265,000 home would save about $800 per year. A borrower with a $467,700 home – the national median home price in December 2022 – would save more than $1,400 annually, according to the HUD press release.
By reducing the costs for this type of loan, more people may be able to afford owning a home.
This is especially true for low-income and first-time home buyers, who tend to benefit from FHA loans the most.
This change is a welcome reprieve for Americans who, in the last year, have experienced higher home prices, housing costs and mortgage rates.
The Bottom Line
By reducing the costs associated with getting an FHA mortgage, HUD aims to make home ownership more affordable.
Nearly 84% of FHA mortgage borrowers are first-time homebuyers, and 43% of FHA borrowers are low income, according to HUD.
Also, FHA mortgage rates are generally lower than conventional rates. So, it will be in buyers’ best interest to have a mortgage pro who can work with them to figure out which loan program would be the best for their current situation. It wouldn’t surprise me to see conventional loan originations drop because of these FHA changes.
Where Can I Get More Information?
Contact me directly to discuss your current situation and how you might be able to take advantage of today’s FHA changes. It would be my pleasure to help you!