FHA Mortgages Just Got More Affordable
Homebuyers and those who use the FHA loan program just received some much needed good news. Beginning March 20th, the US Department of Housing and Urban Development (HUD) will be reducing the annual mortgage insurance premiums (MIP) on FHA mortgages, which are insured by HUD's Federal Housing Administration.
Currently, FHA mortgage borrowers must pay 1.75% of their loan amount in upfront mortgage insurance costs, and they typically pay an annual premium of 0.85%, which is added to their monthly mortgage payment. However, with the new lower rates, borrowers of new FHA mortgages will pay only 0.55% of their loan amount annually in mortgage insurance costs.
For those who have had difficulty achieving homeownership due to less-than-perfect credit or a lack of resources, FHA mortgages have provided a much-needed opportunity. However, one major drawback of these mortgages has been the relatively high cost of mortgage insurance. But soon, FHA borrowers will be able to benefit from lower annual mortgage insurance rates.
The White House announced this change on Wednesday, stating that the FHA's mortgage insurance fund has more than five times the reserves required by Congress. As a result, HUD Secretary Marcia L. Fudge said in a press release that "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 mortgages, we continue our work to address longstanding disparities in homeownership."
This reduction in annual MIP is a significant benefit for new FHA mortgage borrowers. The annual MIP is paid as a percentage of the borrower's loan amount, and the amount paid depends on how much the borrower borrowed, their down payment, and the loan term. This reduction in costs will save the average homebuyer with a new FHA mortgage approximately $800 per year.
It is important for all Americans to have access to opportunities such as wealth-building and homeownership. The reduction of annual MIP on FHA mortgages is a step in the right direction to address longstanding disparities in homeownership and make it more accessible to all.
