FHA Announces Lower Mortgage Insurance Premium, Saving You Money!

Let’s chat about the new upcoming changes with an FHA loan

What's going on?

The Biden Administration has announced that it will cut mortgage insurance premium fees by 0.30 of a percentage point—from 0.85% to 0.55% (30 basis points)

What is Mortgage Insurance Premium (MIP)?

MIP is mortgage insurance required for FHA-insured loans. When you purchase a home with an FHA loan, you are required to pay upfront mortgage insurance premiums (UFMIP) and MIP. UFMIP is a one-time fee that’s equal to 1.75% of the loan amount paid at the time of closing. You have the choice to pay UFMIP, at closing or it can be financed into your loan. Most buyers will choose the finance option. MIP is calculated into your monthly mortgage and is calculated based on a percentage amount of the annual premium charge at closing.

So why do we have to pay mortgage insurance in the first place?

Mortgage insurance provides protection for your lender in the event you are unable to make payments.

The lower your down payment, the higher the risk is for the lender. This is why, if you make a down payment below 20%, you’ll often need to pay for mortgage insurance.

This is great news, soo… Who qualifies for the FHA Discount?

The reduction applies to all FHA loans originating after March 20, 2023.

If I already have an FHA loan, will I qualify?

Borrowers who already have FHA loans won’t qualify for this discount.

What property types qualify for this reduction?

The reduction applies to all eligible property types, including single-family homes, condominiums, townhomes, and manufactured homes.

"The average FHA borrower purchasing a one-unit single-family home with a $265,000 mortgage will save approximately $800 this year as a result of FHA’s premium reduction. For the same borrower with a mortgage of $467,700 – the national median home price as of December 2022 – FHA’s annual MIP reduction will save them more

than $1,400 in the first year of their mortgage. In addition to providing overall savings to borrowers, a lower annual MIP can also help more people qualify for a mortgage."

(Sourced from U.S Department of Housing and Urban Development)

Let’s break it down with an example...

Let's say that your loan to value (LTV) is less than 90% which means you put less than 10% down. Your new basis point would be 50 vs the old basis point of 80. Here is an example of what MIP would look like.

New Basis point:

500,000 X 0.5%= 2,500 annually divide by 12 = $208.00 monthly

Old Basis point:

500,000 X 0.8% = 4,000 annually divide by 12 = $333.00 monthly

How much money would you save? 333-208 = $125.00 monthly ($1504.00 annually)

Don’t wreck your brain over figuring that out. I just wanted to show an example of savings. This is nothing you would need to calculate, your lender handles all of this and will be able to break it down for you.

FHA’s main goal in reducing annual MIP pricing was to offer new borrowers maximum relief on their monthly mortgage payments. That sounds like a win to me!

Check out more information regarding the changes and a chart to break it down here. Guidelines do change from time to time so we will keep our eye on what's next.

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