Mortgage insurance premiums on FHA loans to be reduced in March
The White House says the move could save homebuyers an average of $800 in 2023
Federal Housing Administration (FHA) loans are aimed at lower-income borrowers and are backed by the federal government. (iStock)
The annual mortgage insurance premium (MIP) for FHA loans will decrease from 0.85% to 0.55%, a drop of 0.30 percentage points, the White House announced last week.
MIP is the monthly insurance fee that borrowers with FHA loans pay in addition to monthly interest and principal payments on their mortgages. FHA home loans are mortgages designed for lower-income borrowers with below-prime credit scores.
"Homeownership is currently the principal source of wealth creation for most American households," the White House said in a statement. "But due to a nationwide shortfall in the supply of affordable homes and shifting demand for housing during the pandemic, first-time homebuyers have struggled in recent years to achieve homeownership."
The MIP reduction, which goes into effect on March 20, will lower housing costs by an average of $800 a year for about 850,000 homebuyers and homeowners in 2023, the White House announced.
"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," the Mortgage Bankers Association said in a statement Wednesday.
If you’re interested in becoming a homeowner, you can consider shopping around for different mortgage rates. Visit Credible to compare different lenders at once, without affecting your credit score.
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Home price growth cooled in December
Home prices increased by 6.9% year-over-year in December, according to an analysis by CoreLogic. That’s down from a 7.7% increase in November and from a peak of 20% in April. The organization attributed the trend to a drop in demand amid high mortgage rates.
"The continued slowing of home prices at the end of 2022 reflects weaker housing market demand, primarily caused by higher mortgage rates and a more pessimistic economic outlook in general," Selma Hepp, CoreLogic's chief economist, said in a statement. "But while prices continued to fall from November, the rate of decline was lower than that seen in the summer and still adds up to only a 3% cumulative drop in prices since last spring's peak."
Still, home prices dropped by 0.4% in December 2022 compared to November 2022, CoreLogic said in its report. Home prices are projected to decrease on a month-over-month basis by 0.2% from December 2022 to January 2023 and increase on a year-over-year basis by 3% from December 2022 to December 2023, according to the CoreLogic HPI Forecast.
If you’re a first-time homebuyer looking to keep costs down, you can consider comparing mortgage options. Visit Credible to get your personalized rate in minutes.
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How does MIP work?
MIP is a mortgage insurance cost on FHA loans that typically breaks down into two payments: an upfront premium due at closing and an annual insurance payment. The MIP upfront payment is equal to 1.75% of the total loan value.
So a person with a $150,000 mortgage would owe an upfront payment of $3,500 at closing. Some lenders may add the upfront payment to the loan balance and some may break down the annual MIP premiums among overall monthly mortgage payments.
MIP costs vary depending on the borrower’s loan-to-value ratio (LTV), down payment and length of the loan. Details about all MIP costs can be found on loan estimates provided by the lender.
If you are ready to shop for a mortgage loan, you can visit Credible to compare rates and lenders and get a mortgage preapproval letter in minutes.
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