The Federal Housing Administration (FHA) will be lowering mortgage insurance premiums (MIPs) by 30 basis points, from 0.85% to 0.55%, the Department of Housing and Urban Development (HUD) announced in conjunction with Vice President Kamala Harris.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and homeownership,” said HUD Secretary Marcia 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 mortgages, we continue our work to address longstanding disparities in homeownership.”
FHA loans are primarily used by first-time homebuyers (more than 80%, according to HUD), who have been struggling in the tumultuous state of the market for over a year. Additionally, HUD shared that over 25% of FHA borrowers are homebuyers of color, who have experienced struggles in the market for years.
According to a White House release, by lowering its annual mortgage insurance premium, FHA’s action will help homebuyers all over the country achieve homeownership by allowing borrowers to keep more of their money to afford home costs, especially with the pace of inflation decreasing slowly.
With the decrease in mortgage insurance premiums, the White House stated that FHA borrowers across the U.S. could see the following reductions:
- A family buying a home in Prince George’s County, Maryland, with a $300,000 mortgage will save $900 per year.
- A family buying a home in Detroit with a $200,000 mortgage will save $600 per year.
- A family buying a home in Cincinnati with a $300,000 mortgage will save $900 per year.
- A family buying a home in Phoenix with a $400,000 mortgage will save $1,200 per year.
- A family buying a home in Austin with a $500,000 mortgage will save $1,500 per year.
The announcement comes a few months after the Mortgage Bankers Association (MBA), Manufactured Housing Institute (MHI), NAHB and the National Association of REALTORS® (NAR) sent a letter to the National Economic Council (NEC) urging them to support a reduction of the FHA’s MIP.
The letter stated that “Lowering the MIP—with a focus on FHA’s recurring ‘annual’ premium—increases homebuyers’ purchasing power by reducing monthly payments and directly putting money into their pockets every month,” and that a reduction would also allow “borrowers the flexibility to spend on necessary items like food, gas, education and other monthly bills.”
NAR President Kenny Parcell commented that the announcement “strikes an appropriate balance between assisting homeowners and ensuring the capital reserve ratio and insurance fund remain strong.”
“NAR has continuously advocated for responsibly reducing mortgage insurance premiums to help qualified homebuyers struggling with affordability in the current environment, and we applaud the Administration for this action. Mortgage rates have doubled over the past year, and home prices have increased more than 30% in some counties,” said Parcell. “In this competitive market, new and low- to moderate-income buyers are often left behind. This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home and allow more people across the country to achieve the American Dream of homeownership.”
NAHB also commended HUD for the announcement, with NAHB Chairman Alicia Huey commenting that “With mortgage rates doubling over the past year, this action will boost the housing recovery and reduce the cost of housing for creditworthy borrowers, particularly first-time homebuyers. While the White House reports that this new premium structure will save homebuyers and homeowners an average of $800 per year, it will also help to ease tighter credit conditions in the mortgage market that are harming affordability.”
The premium reduction will take effect on March 20.
