At Rapid Mortgage, we’re always trying to stay on top of the latest in industry news, and this breaking news is something we’ve been waiting on for a long time – it’s something that will have a huge impact on borrowers across the United States this year, and we’re excited to share the news!
On February 22, the Federal Housing Administration (FHA) announced a 30-basis point reduction in the annual premium charged to potential homeowners. This cut will lead to a drop in mortgage insurance premiums from 85 bps down to 55 bps for most borrowers; it is a highly anticipated move and will have a major impact on the industry.
The Mortgage Insurance Premium (or MIP) is the monthly fee homeowners with FHA-insured mortgages pay to insure their mortgage. The fee is paid on top of the monthly principal and interest payments.
The reduction will take effect on March 20, and will be reflected in President Joe Biden’s Fiscal Year 2024 budget (the project is expected to cost about $678 million in the first year of the new pricing). This announcement is a very important step toward making homeownership more affordable and more attainable for everyone, according to the Biden administration.
Impacts will be widespread. With the premium reduction for those looking for an FHA-insured mortgage, this could mean an estimated savings of $678 million for American families. In fact, the MIP cut could reduce housing costs by an average of $850 for nearly 850,000 homebuyers and homeowners in 2023.
The 30-basis point annual reduction will apply to almost all Single Family Title II forward mortgages insured by the FHA. The reduction also applies to all eligible property types, including single-family homes, condos, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts.
Let’s break it down a bit. With this news, the average FHA borrower purchasing a single-family home with a mortgage around $265,000 will save roughly $800 this year as a result of the FHA’s premium reduction. For the same borrower at the national median home price as of the end of last year ($467,700), the annual MIP reduction will save them more than $1,400 in the first year of the mortgage!
In addition to overall savings for borrowers, this lower MIP could potentially help a lot more people qualify for a mortgage.
We are staying on top of all of the latest news and developments with this change, and we will keep you updated along the way. Your Rapid Mortgage Loan Officer is always just a phone call away, and we’d be glad to set up a meeting to sit down and talk through what this change and any other nuances in the current mortgage environment mean for you and your homebuying journey.
Call us today for more information!