HUD Announces Lower Mortgage Insurance Premiums for FHA Loans
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On February 22, 2023, the Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), announced a significant reduction in annual mortgage insurance premiums for newly originated FHA loans.
An FHA loan is a government-backed mortgage insured by the FHA, which has lower minimum down payment and credit score requirements than most conventional loans. However, all FHA loans require the borrower to purchase mortgage insurance, which is paid both up-front at closing and annually in monthly installments as part of the borrower’s monthly mortgage payment.
HUD announced that beginning on March 20, 2023, the annual mortgage insurance premiums for FHA loans would be reduced by 30 basis points. For most FHA loans, which fall into the category of loan amounts less than $726,201 and a loan-to-value ratio greater than 95%, the annual mortgage insurance premium will be reduced from 85 basis points to 55 basis points.
The reduced premiums will be widely applicable. HUD explained that they “will apply to almost all Single Family Title II forward mortgages insured by FHA. Further, the reduction applies to all eligible property types, including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts.”
In terms of savings, according to HUD, “the average FHA borrower purchasing a one-unit single family home with a $265,000 mortgage will save approximately $800 this year as a result of FHA’s premium reduction. For the same borrower with a mortgage of $467,700 – the national median home price as of December 2022 – FHA’s annual MIP reduction will save them more than $1,400 in the first year of their mortgage.”
The Mortgage Bankers Association (MBA) commented that “the lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season. This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.”
Prior to 2023, the FHA annual premiums had not been adjusted since January of 2015, when they were reduced from 135 basis points to 85 basis points.
How can we help?
CLA is prepared to assist your institution. Our mortgage professionals can help you evaluate the impact this new rule has on your operations. We are here to know you and help you. Contact Us with any questions or to learn how we can assist your mortgage operations.
Zachary Pearlstein, JD, is a Regulatory Compliance Director with CLA's Mortgage Advisory Division. He joined CLA on January 1, 2014, as part of its acquisition of Bankers Advisory, Inc. Zachary oversees Mortgage Advisory's regulatory compliance team, which focuses on federal and state compliance, fair lending, and the Home Mortgage Disclosure Act (HMDA). He is a graduate of Brandeis University and earned his juris doctor at Suffolk University Law School. He is admitted to the Massachusetts Bar.
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