The U.S. Department of Housing & Urban Development (HUD), through the Federal Housing Administration (FHA), has announced a 30-basis-point reduction to the annual mortgage insurance premiums (annual MIP) charged to homebuyers who obtain an FHA-insured mortgage.
The MIP will be reduced from 0.85% to 0.55% for most homebuyers seeking an FHA-insured mortgage, which could mean an estimated savings of $678 million for American families in aggregate by the end of 2023 alone. The reduction will benefit an estimated 850,000 borrowers over the coming year, saving these families an average of $800 annually.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership,” said HUD Secretary Marcia L. 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.”
HUD’s action today will help address historic disparities in homeownership, where homebuyers of color have been underrepresented.
"FHA's announcement strikes an appropriate balance between assisting homeowners and ensuring the capital reserve ratio and insurance fund remain strong,” said National Association of Realtors (NAR) President Kenny Parcell. “NAR has continuously advocated for responsibly reducing mortgage insurance premiums to help qualified home buyers 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 percent in some counties. 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."
The 30-basis-point annual MIP reduction 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.
“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,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “For many families, the savings will make the difference in their ability to purchase the home of their choice.”
HUD’s MIP reduction today builds on a range of steps the Department has taken to make homeownership a reality for more Americans and close the racial divide in homeownership. Other measures the Biden-Harris Administration have taken include:
- In September 2022, to make it easier for first-time homebuyers to qualify for affordable FHA-insured mortgage financing, FHA implemented changes to its underwriting policies to permit lenders to use positive rental history as an additional factor in evaluating an applicant’s creditworthiness for an FHA-insured mortgage. This change makes FHA’s credit evaluation more comprehensive and equitable and supports expanded access to homeownership for first-time homebuyers transitioning from renting.
- In June 2022, HUD’s Office of Housing launched new online and telephonic search capabilities to significantly increase consumers’ ability to locate and seek assistance from more than 1,500 HUD-approved housing counseling agencies and the 4,000 HUD-certified housing counselors they employ. The tools are used by more than 3,000 consumers on average each day to obtain housing counseling assistance for topics that include homeownership, financial literacy and planning, rental housing, foreclosure avoidance and eviction prevention, reverse mortgages, and housing stability. The telephonic search capability offers translation services in more than 250 languages.
- In June 2021, FHA announced updates to its student loan monthly payment calculations to remove barriers and provide more access to affordable single-family FHA-insured mortgage financing for creditworthy individuals with student loan debt. The new policy more closely aligns FHA student loan debt calculation policies with other housing agencies by basing the monthly payment on the actual student loan payment, which is often lower, and helps home buyers with student debt to meet minimum eligibility requirements for an FHA-insured mortgage.
- In November 2022, Secretary Marcia L. Fudge hosted “The HUD House Party,” a program to advertise HUD’s programs to make homeownership attainable and accessible. The program had more than 4,000 viewers across social media and attracted the public to programs like FHA-insured mortgages, housing counseling, and responses to housing discrimination.
“Ensuring a robust FHA program that protects taxpayers and offers affordable homeownership opportunities for families in underserved communities is important, and we will work with the Biden administration and Congress on policies that have the greatest impact on borrower affordability and sustainability,” added Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit, CMB.
Ginnie Mae President Alanna McCargo noted, "This action can put homeownership in reach for more home buyers by lowering housing costs and making it more attainable, especially for low- and moderate-income households. A reduced annual MIP increases affordability and provides payment savings amidst rising costs of housing and high market interest rates."