FHA HOMEBUYERS WILL SAVE AN AVERAGE OF $800 ANNUALLY ON MORTGAGE PAYMENTS THROUGH PREMIUM REDUCTION
On Feb 22, 2023, the Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), announced a 30 basis point reduction to the annual mortgage insurance premiums (annual MIP) charged to homebuyers who obtain an FHA-insured mortgage. The premium will be reduced from 0.85 percent to 0.55 percent 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. This action will help address historic disparities in homeownership, where homebuyers of color have been underrepresented.
The Department changed FHA’s underwriting policies to allow lenders to use positive rental history in evaluating applicants’ creditworthiness for an FHA-insured mortgage – making it easier for first-time homebuyers to qualify. HUD changed the way in which student loan debt is evaluated in FHA mortgage underwriting, enabling more borrowers making payments on student loans to qualify for an FHA-insured mortgage.
Annual MIP Reduction Details
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.
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.
The annual mortgage insurance premium reductions are noted in the table below and are effective for mortgages endorsed for insurance by FHA on or after March 20, 2023.
About FHA’s Annual MIP
FHA’s annual MIP is calculated as a percentage of the outstanding loan balance. For example, an outstanding loan balance of $200,000 with a 50 basis point (0.5%) annual MIP, would yield an annual MIP amount of $1,000.
Lenders typically assess the annual MIP via 12 equal payments included in a borrower’s monthly mortgage payment. FHA mortgage insurance facilitates the broader availability of mortgage financing for low-and moderate-income households by reimbursing lenders for losses when a loan defaults. The mortgage insurance premium revenues received by FHA offset mortgage insurance claims it pays to lenders, enabling the program to operate without government subsidy.
The MIP constitutes a portion of the costs considered in calculating a borrower’s debt-to-income ratio, which is a factor used in qualifying households for mortgage credit.
To find a housing counselor Search the Map or Search by Zipcode, or call HUD's interactive voice system at: (800) 569-4287. Consumers can also contact a HUD Approved National Housing Counseling Intermediary or State Housing Finance Agency.
See the ‘Reduction of Federal Housing Administration (FHA) Annual Mortgage Insurance Premium (MIP) Rates’ mortgagee letter here.
Inga Modu-Rella
February 2, 2023
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