By Douglas Katz – 02/22/23
There was big news earlier in the week for VA Loans and today The White House released a press release that FHA will be providing similar pricing relief through a reduction in the Mortgage Insurance Premium (MIP) that it charges borrowers. The reduction will lower FHA borrower costs reduce “by 0.30 percentage points, from 0.85% to 0.55% for most new borrowers” per the FACT SHEET. In addition, “the mortgage insurance premium is the monthly fee that homeowners with FHA-insured mortgages pay to insure their mortgages, which they pay on top of their monthly principal and interest payments.”
What is Mortgage Insurance?
Mortgage Insurance Premium is a fee that borrowers are required to pay when they take out an FHA-insured loan. This insurance protects the lender in case the borrower defaults on the loan. The FHA can lower its MIP by adjusting its guidelines, which usually happens in response to changes in the housing market or the economy.
For example, the FHA may lower its MIP if there is a decrease in the number of loan defaults and delinquencies, or if there is an increase in the value of the homes that are being financed. In addition, changes in the FHA’s budget and financial stability may also play a role in determining whether or not the MIP will be adjusted.
It’s important to note that any changes to the FHA’s guidelines and policies, including changes to the MIP, are typically announced through official channels, such as press releases or updates on the FHA website. If you’re interested in finding out if the FHA has lowered its MIP recently, you may want to check these sources for more information.
So what does the new MIP really mean to borrowers?
Back to the big news for FHA borrowers in 2023, this little reduction could mean big savings. Although fractions of percentages do not sound like very much, when borrowing hundreds of thousands of dollars. The Fact Sheet provided some specific examples at different purchase prices.
“For example, the average homebuyer in Prince George’s County – where Vice President Harris and Secretary Fudge are traveling today – will save nearly $900 per year, based on the average home price in the county of around $300,000. In addition:
- A family buying a home in Detroit with a $200,000 mortgage will save $600 per year
- A family buying 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”
I look at deals daily and savings like this not only put the borrower on better footing in a new home with more money in their pocket, but also can mean that a borrower can qualify when they would not have previously been able to. With inflation and higher rates putting homeownership out many people’s reach, this will provide some relief.
Divorcing couples should take note
I always do a specific call out when something provides benefit to splitting households. As I previously referenced, I see a lot of deals many of which are divorce related. Many of my borrowers in this situation have high debt ratios. At best, these can be tight at worst, they can be too high to get the deal done. FHA can be the answer with allowable debt ratios higher than conventional financing. Reducing the MIP provides even more opportunity for divorcing couples to stay on or buy homes. This is why it is so important to plan out the process and stay on top of opportunities to execute a loan as opposed to just waiting until the end of the allowable timeline and hoping that it works out.