President Joe Biden and his administration are taking steps to lower mortgage insurance premiums (MIPs) for new and low-income home buyers. With median home prices still trending near their highest level ever, it seems that Biden is attempting to improve mortgage insurance costs, likely to partially offset rapidly rising interest rates.
Today, the U.S. Department of Housing and Urban Development (HUD) announced a 30 basis point reduction to the annual MIPs homebuyers with Federal Housing Administration (FHA)-insured mortgages are required to pay. The premium will be cut from 0.85% to 0.55% for most homebuyers with FHA-insured mortgages.
According to the Federal Housing Administration (FHA), the change will lower the mortgage insurance fee borrowers are required to pay, when going through the FHA. It’s expected to lower costs by roughly $800 per year on a typical loan, or 0.3%. On a monthly basis, this would cut insurance costs for those with FHA-insured loans by about $70, assuming a $270,000 loan. The reduction is projected to save American families $678 million by the end of 2023, benefitting an estimated 850,000 borrowers.
HUD Secretary Marcia L. Fudge commented on the importance of this initiative:
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership […] 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.”
Who Qualifies for Lower Mortgage Insurance Costs?
Almost all FHA Single Family Title II mortgage owners will qualify for the 30 basis point annual MIP reduction. Single Family Title II loans are comparably low-risk for lending parties, as the government is essentially insuring the loan against a default. The loans also evaluate rental payment history as an aspect of applicants’ credit history. As such, they are a popular choice for borrowers with limited or low credit histories.
The MIP reduction will also apply to certain property types, including single family homes, condominiums and manufactured homes, given “eligible loan-to-value ratios, and all eligible base loan amounts.”
For those with a mortgage of $467,700 — the current national median home price — the MIP reduction stands to “save them more than $1,400 in the first year of their mortgage.” The lower MIP will also allow more people to qualify for mortgages.
Julia Gordon, Assistant Secretary for Housing and Federal Housing Commissioner, also commented on the impact this change will have on equitable home ownership:
“At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages […] For many families, the savings will make the difference in their ability to purchase the home of their choice.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
