Homeowners and potential home buyers looking to take out an FHA loan will soon be able to benefit from the recent reduction in annual mortgage insurance premiums (MIPs).
On February 22, 2023 HUD (the U.S. Department of Housing and Urban Development) announced that there will be a 30 basis point reduction to the annual mortgage insurance premiums for homebuyers who obtain an FHA-insured mortgage.
The run down:
- What is an MIP?
- About the MIP Reduction
- How much will I save?
- Apply for an FHA Loan
What Is an MIP?
A mortgage insurance premium, or MIP, is required on all FHA loans (regardless of down payment or interest rate) to allow for flexible qualification requirements, like a lower credit score.
At the time of closing there is an upfront MIP which is to be paid. However, there is also an annual MIP, which is broken up into monthly payments as part of your mortgage payment and paid yearly.
**The FHA is reducing the cost of the annual MIP, not upfront.
About the FHA MIP REduction
HUD and The Biden-Harris Administration has loosened FHA's strict underwriting criteria, allowing first-time home buyers who have strong rental histories to be better positioned when applying for an FHA mortgage loan.
The annual MIP reduction will apply to almost all Single Family Title II forward mortgages insured by FHA and 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.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership,” said HUD Secretary Marcia L. Fudge. “Today, we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgage loans, we continue our work to address longstanding disparities in homeownership.”
How Much Will I Save?
The premium will be reduced from 0.85 percent to 0.55 percent for most FHA-insured mortgages, which will be saving FHA loan borrowers an average of $800 per year.
The cost of an MIP is a percentage of your loan balance.
- Let's do the math -
A 30 point reduction means a 0.3% reduction of your loan balance.
If you were previously paying the most common MIP cost (0.8% - 0.85%), you will now pay 0.5% - 0.55%.
It is important to note that in order for current FHA borrowers who own a home to benefit from this reduction, they must refinance their FHA loan.
For more information about refinancing your mortgage, click here!
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